Investing.com – Investors around the world are holding their breath ahead of the release of November data this Wednesday at 2:30 p.m. CET.
The consumer price index is expected to increase by 2.7% on an annual basis, which would represent an acceleration of 0.1 percentage point compared to the previous month.
Excluding food and energy, so-called core inflation is forecast at 3.3%, unchanged from October. Both measures should also show monthly increases of 0.3%.
With the Fed targeting an annual inflation rate of 2%, the report will provide further evidence that the high cost of living remains a reality for American households, although it is true that inflation has fallen significantly compared to the CPI cycle peak of around 9% reached in June 2022.
Nevertheless, investors widely expect another rate cut for the next FOMC meeting next Wednesday, December 18. The Investing.com Fed rate barometer shows a 92.7% probability that the Fed will lower its rates again by 0.25%.
However, a pause in progress on inflation could weigh on rate cut expectations for future meetings, while the chance of an additional 0.25% rate cut in January is currently only 20.5%. For the following meeting, in March, the probability of a further rate cut increases to almost 63%.
Thus, better-than-expected CPI data could push back the expected date for the next Fed Fund rate cut even further, just as inflation below consensus could make another rate cut in January more likely.
In this regard, it should be noted that Goldman Sachs (NYSE:) analysts were cautious about the inflation outlook in a recent note.
Although they anticipate “further disinflation over the next year” due to easing in the auto and home rental categories, as well as slowing labor markets, she also fears that President-elect Donald Trump’s planned tariffs will keep inflation high in 2025.
Goldman forecasts that core CPI inflation will decline, but only to 2.7% next year, while the Fed’s target inflation gauge, the Personal Consumption Expenditures Price Index ( PCE), will increase to 2.4% for the core index compared to its most recent level of 2.8%.
BofA believes CPI could impact markets more than expected
For their part, Bank of America (NYSE:) strategists warned that Wednesday’s inflation data could have a particular impact on stocks after months of muted reactions to CPI readings.
Strategists point to the Bloomberg Inflation Surprise Index, which indicates that the most recent inflation data marked the biggest CPI upside surprise since May.
“In this context, we believe that the last two major events of the year (CPI and FOMC) can determine the near-term direction of the market. A weaker result could pave the way for a year-end rally, with the second half of December being the second strongest period of the year,” the strategists said.
Likewise, they noted that “a firmer release can reignite volatility, especially after the 5% post-election rally.”
On the impact of this data on rate cut expectations, analysts said they believe “the CPI data will be weak enough to confirm a cut in December,” but stressed that forecasts for future meetings may be affected.
