US Inflation preview: Brace for hotter-than-expected numbers, too early to call the peak

For many ASX investors, the long weekend won't start until 10:30 pm, when the US releases its closely watched inflation data.

A hotter-than-expected reading might force more aggressive interest rate hikes from the Federal Reserve, which would in turn drive more panic across global equity markets. 

The market hates uncertainty, and elevated inflation numbers would raise more doubts about the Fed's ability to control inflation, the outlook for interest rates and the state of the broader economy.

Markets may breathe a sigh of relief if inflation begins to ease, which provides more certainty about the Fed’s interest rate outlook and reprieve for consumers that have been hit with surging food and gas prices.

What's the consensus 

Consensus expects US May inflation to come in at 8.3%, unchanged from April.

Core inflation - which removes volatile items like food and energy - is forecast to be 6.0%, down from 6.2% in April.

There are a lot of differing expert views being thrown around, so here are some key perspectives ahead of the big night.

Three signs from Bloomberg

Bloomberg identified three key supply side factors that might allude to a turnaround for consumer prices. That being:

1. Semiconductor prices have halved since July 2018 peaks and down -14% from mid-2021

2. Shipping container prices are down -26% since September 2021 all-time highs

3. North American fertiliser prices have dipped -25% from March record highs

Too early to call the peak

Mohamed El-Erian, the chief economic adviser at Allianz, told Bloomberg that it wouldn't be surprising if we "see a headline print higher than 8.5%".

"The drivers of inflation are broadening. At the headline level, energy prices are going up month-on-month quite dramatically. We see pressure on shelter and food. It’s way too early to say inflation has peaked."

The White House braces for grim numbers

Press secretary Karine Jean-Pierre told reporters on Wednesday that inflation numbers are likely to be elevated.

"We expect the headline inflation number to be elevated ... particularly when you look at things like airfares and the effect of higher jet fuel costs," she said.

On a lighter note, Biden called inflation "the bane of our existence" during an interview with Jimmy Kimmel.

Maybe just look at oil prices

Oil is arguably the single most important factor when it comes to inflation.

Oil prices rallied through US$120 with ease as EU sanctions on Russian supply will likely exacerbate the ongoing tightness in energy markets.

Even in the face on economic growth concerns and more recently, fresh restrictions in Shanghai, oil has refused to stage any meaningful pullbacks.

It's difficult to make the case for peak inflation if oil prices continue to linger close to March highs of US$129 a barrel.

US Inflation (top) and Oil price (bottom)