Tomorrow's CPI report is a big one with the market expecting an improvement to 6.2% y/y from 6.5% on the headline. Every part of the report is going to matter but the Fed is likely to be looking most-closely at core CPI and the consensus is 5.5% from 5.7% along with a 0.4% m/m rise.
Deutsche Bank notes how the benchmark revisions released last week show that core inflation has been running hotter than previously believed.
That's more likely to push the Fed in a hawkish direction but they will also need to make not of changes to housing weights, with OER now taking up a larger chunk of the index. They note that owner’s equivalent rent goes from 24.3% to 25.4% of the basket.
"At the moment, OER is still running hot so a higher weight will likely keep some upward pressure on core CPI in the near term. However, later in the year this could work in the opposite direction," they write.
The Fed is trying to look through that with an emphasis on core services, which excludes housing.
Overall, this is going to be a report could requires a bit more than trading the headline as every detail matters.