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The inflation report in the US is highly anticipated for several reasons, as investors become increasingly sceptical about the possibility of any rate hikes by the end of the year and even start to weigh in on the chances of cuts by the FED.
Firstly, the report is expected to give investors more insight into the ongoing situation with Donald Trump’s trade war with China and the ramifications for the US economy following the renewed rounds of tariff-exchanges and subsequent escalation of tensions between the two countries.
Our great Patriot Farmers will be one of the biggest beneficiaries of what is happening now. Hopefully China will do us the honor of continuing to buy our great farm product, the best, but if not your Country will be making up the difference based on a very high China buy......
— Donald J. Trump (@realDonaldTrump) May 14, 2019
The President made this promise almost a month ago, just a week after the last monthly adjusted CPI report was released, and he made promises that his administration would work towards the improvement of the state of the agricultural sector in the country. He made promises to redirect the anticipated capital gains from the trade tariffs with China towards the American farmers in an attempt to support them.
However, from the CPI report that was released on the 10th of May, which measured the monthly inflation changes in various sectors of the economy, it was estimated that the ‘food index fell for the first time since June 2017’. [source] Thus, the falling prices in the food sector can become a significant issue for the entire industry, as inflation stagnates and exporters become to find it increasingly difficult to sell their produce.
For that reason, the focal point of this week’s report might turn out to be the expected change in the food sector inflation data, and if the tendency of declining prices is showed to have remained unchanged for the month of May, then evidently, Trump’s rhetoric on foreign trade would be strained once again. Thus, the monthly adjusted CPI report could have significant political consequences for the entire country as well as the implied economic outlook.
Secondly, the report is also expected to spell out more statistical information on the resilience of the US economy and its ability to preserve a sustainable growth in the long-term, without derailing from the current 2% inflation rate target, which was finally reached in the month of April.
Image source: TradingEconomics.com
The overall expectation is for the composite inflation rate to have decreased to 0.1%, for the month of May. The last times when similar monthly decreases have been registered were for the months of January and February when the overall inflation rate was well-below, the targeted 2% level at between 1.5 and 1.9.
Hence, Wednesday's report could be proven to be one of the initial indications that the US economy's growth rate might not be as resilient as previously thought and the recent surge in the prices resembled more of a sudden surge due to investors speculation rather than a sound economic policy.
At any rate, there is a very little likelihood of any immediate market reactions following the immediate release of the report on Wednesday, unless there is a significant surprise, and the data would instead shed light on the prospects for longer-term growth of the US economy.
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