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The Inflation Showdown

Today is the most anticipated inflation release by the USA. This is because it will be the first release with a new method with only one-year data used to calculate the comparison instead of two-year data. The market estimates that it will come at 6.2% yearly basis compared to the last release at 6.4%.

This estimate has helped keep the equity and bond markets stable. Even the Fed rate swap market is stable with 90% off of a 0.25% hike in the next meeting.

But the risk of actual data coming above the estimate is higher as gasoline prices have risen substantially in January 2023. Another risk to the data is from egg prices and services, both of them saw higher prices in January month as well.

If data does come above estimates then the bond yield will rise above the recent highs as the Fed swap market adjusts the full-year rate hike probability.

Many counties that have already released the data have shown that actual data is higher than estimates leading to a rise in local yields.

The estimates are very divided and thanks to flying the new method of calculation uncertainty are higher. This will only result in large moves on either side increasing the volatility in a short period


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