Inside Markets — CPI Preview

Consensus is looking for a headline CPI print of +0.2% and core reading of +0.3% MoM.  We’re expecting slightly higher numbers and wouldn’t be surprised with a +0.30% headline and +0.40% core CPI number.  This would take the YoY headline rate to +2.6% and core rate to +3.4%.  We see markets far more interested in core CPI given that its remained higher/longer.  A core CPI print of +0.40% (maybe +0.36% unrounded) would be a temporary drag on equity markets (at least two days ahead of Friday’s retail sales number) before participants look through the report and the uptrend resumes.  An inline rounded core CPI number of +0.3% would likely result in lower yields and resumed pro-cyclical equity rotation with the Russell 2000 (RTY) outperforming the SPX. A cooler core CPI print likely requires goods price deflation and static shelter prices.  This type of outcome would result in bullish curve steepening that encourages performance chasing in cyclical/value equity groups.