LIVE MARKETS-Here comes U.S. inflation...

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HERE COMES U.S. INFLATION...

Last week's U.S. jobs report passed with little fuss from markets, but today's inflation figures might have more of an impact given the impact of the Iran war on energy prices.

Headline CPI is expected to increase to 3.7%. That would mark the highest rate of annual inflation since August 2023. Core CPI is expected to increase to 2.7%, the highest since September last year.

"Elevated oil prices will keep consumer energy prices elevated and in turn boost core inflation," wrote Goldman Sachs economists Jessica Rindels and Ronnie Walker.

They flag four component-level trends to watch:

1/ Shelter - forecast a sharp one-time acceleration reflecting the unwind of the downward bias in the index level from missed data collection during the government shutdown

2/ Travel services - expect strong travel services inflation this month, partly reflecting passthrough of the increase in oil prices since the start of the war in Iran

3/ Autos - expect mixed autos inflation, decline in used car prices and rise in new car prices

4/ Health insurance - expect this update to result in continued large monthly declines of roughly 1.5% in the health insurance component due to semiannual update to the source data

What does it mean for the Fed? The central bank will receive one more inflation report before its next meeting in mid-June, likely to be under the stewardship of Kevin Warsh as Jerome Powell's leadership term ends on Friday.

"Regardless of the result, the Fed will almost certainly remain on hold next month and likely for the duration of the Middle East conflict," said Santander economist Stephen Stanley.

"However, if inflation continues to surprise to the upside, as it has in recent months, the centre of gravity on the Committee will continue to shift in a hawkish direction, even if incoming Chairman Kevin Warsh takes a strong dovish initial position."

(Samuel Indyk)

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