Why it's important?
The ranges of estimates are important in terms of market reaction because when the actual data deviates from the expectations, it creates a surprise effect. Another important input in market's reaction is the distribution of forecasts.
In fact, although we can have a range of estimates, most forecasts might be clustered on the upper bound of the range, so even if the data comes out inside the range of estimates but on the lower bound of the range, it can still create a surprise effect.
Distribution of forecasts for CPI
CPI Y/Y
- 2.7% (2%)
- 2.6% (56%) - consensus
- 2.5% (28%)
- 2.4% (12%)
- 2.3% (2%)
CPI M/M
- 0.3% (17%)
- 0.2% (73%) - consensus
- 0.1% (10%)
Core CPI Y/Y
- 3.4% (8%)
- 3.3% (81%) - consensus
- 3.2% (11%)
Core CPI M/M
- 0.4% (4%)
- 0.3% (82%) - consensus
- 0.2% (14%)
Analysis
We can ignore the headline CPI as the market will focus on the Core figures. We can notice that we have a pretty strong consensus and not much skew on either side.
Nonetheless, there's been a consistent bid in the US Dollar going into this report with Treasury yields higher and stocks kinda rangebound. The market might have already assigned some premium to a higher than expected print, so there's some risk of a short-term "sell the fact" reaction on a higher than expected number.
It goes without saying that a bigger than expected upside surprise should see the momentum increasing immediately with the US Dollar likely rallying across the board and Treasury yields shooting higher.
On the other hand, a soft print will likely see the US Dollar and Treasury yields falling, although one can argue that it's just going to provide a pullback to go long the US Dollar and short bonds again at even better levels as future conditions will likely see inflation getting stuck above the target or even moving back higher.
