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Wall Street is in an uproar over a possible stock market crash following the release of April's Consumer Price Index (CPI) which must be presented this Wednesday, May 15. In fact, the crucial point inflation The report will offer important information on whether to expect interest rate cuts this year.
So what do you need to know about this important market driver?
Well, the CPI for April is expected show sticky inflation, with high prices for gas and the service sector. Consumer prices are expected to rise 0.4% in April, the same as in March, putting annual inflation at 3.4%. That would be a slight decrease from March's 3.5% reading. It would also mark the 11th consecutive month of inflation at or above 3%.
The core CPI, which excludes the volatile food and energy categories, is expected to slow to 0.3%, down from 0.4% in March. That would bring annual inflation to 3.6%, from 3.8% in March.
If the forecasts come true, they would probably only confirm that inflation is not falling, and interest rates probably won't either.
Fears of a stock market crash swirl ahead of CPI
At this point, many traders have already given up hope of a summer rate cut, counting instead on the first cut to come at the September policy meeting. However, if prices continue to rise at the current pace, some believe the Federal Reserve could choose to keep rates elevated (or even raise them) as a means of driving prices down.
โIt is certainly not lost on us that if the second quarter inflation profile reflects that observed during the first quarter, then the [Federal Open Market Committee] We may not be able to cut until 2025,โ BMO capital market strategists said. Ian Lyngen and Vail Hartman.
Unfortunately, with the arrival of the Producer Price Index (PPI) hotter than projected On Tuesday, hopes for Wednesday's CPI are dimming. Wholesale prices increased by 0.5% in April, reflecting annual inflation of 2.2%. This surpassed forecasts for a 0.3% increase and March's PPI reading of 1.8%.
Producer prices tend to impact consumer prices. As such, some economists believe the PPI has set the stage for a potentially nasty CPI mistake. That doesn't bode well for the stock.
โA bullish surprise here will likely introduce some volatility. For the S&P 500 to maintain its recent gains and potentially break new records, it is crucial that markets receive reassurance about the current decline in inflation. This is dependent on seeing a notable decline in the underlying CPI,โ said Russell Shor, Senior Market Specialist at FXCM.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com. Publication Guidelines.
