US CPI is key this week - Nomura

Analysts at Nomura offer an insight into this week's key CPI data for the US economy on Friday.

Fed chat of last week and this week's updates - UOB

Key Quotes:

"We expect a decent rebound in core CPI inflation in April, after downside surprises in March. Core CPI declined 0.1% m-o-m in March, marking the first decline since January 2010. Core goods prices slipped 0.3% (0.329%) m-o-m, its largest decline since November 2006. 

However, as much of the decline was due to transitory factors, we expect modest improvement in core goods prices in April. Yet, we think that the recovery from the negative impact from transitory factors may be gradual. 

That said, weakness in some components of core goods may sustain in coming months, such as used cars and parts prices. As for core services prices, which sharply declined due, in part, to an unexpected 7.0% decline in wireless telephone service prices, we expect a decent rebound. 

The sharp drop in wireless telephone service prices was due to a methodological change by the BLS to capture quality changes in wireless telephone services by the service providers. Looking ahead, it is likely that the abrupt weakness in this index would gradually wane. Moreover, lodging-away-from-home prices, which often tend to be volatile, may bounce back strongly through a mean reversion process. Altogether, our forecast for core CPI inflation in April is 0.2% (0.197%) m-o-m. 

On a year-over-year basis, we forecast an increase of 2.0% (2.017%), which is slight acceleration from a 2.004% increase in March. As for noncore components, retail gasoline prices trended higher in April. Despite the spring driving season, retail gasoline prices did not pick up strongly in March. 

Moreover, futures prices suggest a strong positive payback in natural gas prices after a sharp decline in March. Against this backdrop, we expect a decent recovery in aggregate energy CPI. Moreover, we expect food price inflation to have grown at a steady pace. Based on the prices paid at farms, we think food-at-home prices have increased steadily. For food-away-from-home prices index (the other subcomponent of food prices), tighter labor markets in the restaurant industry suggest stable increases. Taking these subcomponents into account, we expect continued improvement in aggregate food CPI.

 All in all, we expect a 0.3% (0.273%) m-o-m increase in the headline CPI in April, recovering from a sharp slowdown in March. On a year-over-year basis, we forecast an increase of 2.3% (2.316% y-o-y). Our CPI NSA forecast for April is 244.801. Note that our forecast is subject to the PPI report, scheduled for release on 11 May."