Scenario for CPI today

The US CPI today is not just one price indicator.
The CPI is close to the first gateway to the inflation-checking section leading up to FOMC in the early hours of June 18.
There are three main scenarios.

[1] CPI is lower than expected
[2] CPI meets expectations
[3] CPI is higher than expected

[1] CPI is lower than expected

If the CPI comes out lower than expected, it is likely to be a short-term boon for the stock market.

Because in this case, the market can interpret “inflationary pressures are slowing again.”

In particular, if Core CPI slows down, fears of a rate hike could be reduced, and some expectations of a rate cut could be revived.

But there is an important point here.

Just because only one low CPI comes out, it’s hard to say that the inflation problem is over.

This is because we still have a schedule ahead of us.

US CPI for June 10
ECB rate decision for June 11
US PPI for June 11
University of Michigan expected inflation on June 12
BOJ rate decision for June 15-16
U.S. Retail Sales for June 17
Kevin Wash’s first FOMC in the early morning of June 18th

The schedule is more of a process for markets to check one by one “whether inflation picks up or slows down.”

A good scenario is like this.
CPI Slowdown
→ PPI slowing down
→ stabilization of expected inflation
→ ECB/BOJ interpreted less hawkish
→ a moderate slowdown in retail sales
→ Fed easing freeze

In this case, the market interpretation may change like this.

“Price pressure is dampening again. It could revive some expectations of a rate cut.”

However, for this scenario to be established, simply the headline CPI is not enough.

Core CPI, PPI, and expected inflation must stabilize together.

A University of Michigan survey showed one-year expected inflation rising to 4.8% in May and long-term expected inflation to 3.9%.

So it’s important that this number doesn’t come down or at least go up further from the June preliminary.

[2] CPI meets expectations

This is the most ambiguous case.

On the surface, it’s “in line with expectations,” so the market may not be too surprised.

However, meeting expectations is not necessarily a good number in this section.

This is because market expectations themselves may reflect already high price pressures.

In other words, saying that the CPI met expectations may mean “no shock,” but it does not mean that “inflation has definitely been dampened.”

The possible flow is like this.

Conformity with CPI expectations
→ PPI is high or mixed
→ Expected Inflation Remains High
→ ECB/BOJ is hawkish
→ Retail sales are supported
→ Fed freezes but maintains hawkish tone

In this case, the market may not be too relieved or too collapsed.

However, the key point is that it is difficult to revive expectations for a rate cut strongly.

Currently, the market’s default is already tilted towards “holding high interest rates” rather than “quick rate cuts.”

So even if the CPI meets expectations, if the Core CPI is high, and if the PPI and expected inflation don’t come down together, the market can see this as a “failure to slow inflation” rather than a neutral one.

In other words, matching expectations is not a safe number.

If the Core CPI is sticky, even if it meets expectations, it can be a burden for growth stocks.

[3] CPI is higher than expected

If the CPI is higher than expected, it is a clear bad news.

In particular, if the Core CPI is high, the market interpretation becomes very simple.

“Inflation is not dead yet. It is difficult to cut interest rates, but rather we should look at the possibility of further increases.”

The most dangerous combination is this.

High CPI
→ High PPI
→ high expected inflation
→ ECB/BOJ hawks
→ strong retail sales
→ Wash Fed Hawks

In this case, it means that both price pressure and demand are alive at the same time.

In other words, corporate costs are rising, consumption is still holding up, and central banks cannot easily lower interest rates.

In particular, the PPI jumped 1.4% month-on-month in April.

If this trend continues in May, the market is likely to see “increases in producer prices could be transferred back to consumer prices.”

In this case, the burden can be on the stock market, especially for high-valued growth stocks.

There is one more interesting historical point here.

The S&P 500 has all fallen on the day of the first FOMC announcement by the three Fed chairmen, Bernanke, Yellen and Powell.

But this shouldn’t simply be seen as “the first FOMC of the new chairman, so the stock price is out.”

A more accurate interpretation is this.

The first FOMC of the last three was not the start of a mitigation cycle.

Bernanke: Real Rate Hike + Signals Further Hike
Yellen: rate freeze but QE shrinks + signals early hike
Powell: Actual Rate Hike + Signals Further Increase

That said, the market tried to see “how hawkish this guy is” at the new chairman’s first FOMC, and in all three cases, the S&P 500 fell on the same day as the direction of tightening was confirmed.

Even in this Kevin Wash first FOMC, the key is not whether or not to freeze interest rates.

The key is the nature of the freeze.

An easing freeze could give the market relief.

But if it’s a hawkish freeze, the market could actually take it as a sign of tightening.

In particular, the following expressions should be seen.

inflation remains elevated
inflation expectations
energy price shock
tariffs
supply shock
additional firming
further tightening
higher for longer
data dependent

In conclusion, today’s CPI is not an exclusive event.

From June 10th to 18th, it is a section where global central banks check one by one whether or not to admit a re-emergence of inflation.

If CPI definitely slows down, it’s a boon for the market.

Co even if CPI meets expectations