LIVE MARKETS-Investors ready for CPI data

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INVESTORS READY FOR CPI DATA

While investors are still digesting this morning's cooler-than-expected U.S. producer prices index data, they are bracing for an even more important measure of U.S. inflation - the consumer prices report due before the bell on Thursday.

In emailed comments Wednesday, Julien Lafargue, chief market strategist at Barclays Private Bank, said the PPI data has made investors more optimistic ahead of the consumer price data. The S&P 500 .SPX is higher on the day.

"The latest downward surprise in the US Producer Price Index (PPI) has injected fresh optimism into financial markets, fuelling expectations that the upcoming Consumer Price Index (CPI) release may also reflect benign inflationary pressures," he says, adding: “While the details of the CPI will be closely scrutinized, the PPI’s signal is hard to ignore. Unless CPI delivers a significant upside shock, investors are likely to maintain their dovish outlook."

Wednesday's data showed that U.S. producer prices unexpectedly fell in August amid a compression in trade services margins and mild increase in the cost of goods, suggesting that domestic firms were probably absorbing some of the tariffs on imports.

Some economists are cautioning against complacency on inflation, with PPI readings sometimes seen as volatile. The impact of tariffs may be reflected in the consumer price data.

Morgan Stanley strategists said in a note that their economists forecast a 2.92% year-over-year, and "anticipate a more pronounced impact from tariffs this month compared to prior periods, though this will be partially offset by a deceleration in services inflation – particularly in categories that previously saw sharp
price increases, such as airfares and dental services."

A Reuters survey of economists forecast the CPI increased 0.3% last month after climbing 0.2% in July.

Consumer prices are expected to have advanced 2.9% on a year-over-year basis in August after rising 2.7% in July. Core CPI inflation is predicted to have increased 0.3% for a second straight month. That reading would keep the annual increase in core CPI inflation at 3.1%.

The data is especially key since the Federal Reserve is widely expected to cut interest rates by at least 25 basis points next week in order to shore up the economy, amid worries about the labor market.

(Caroline Valetkevitch)

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