A Good CPI This Week?

The stock market survived last week's unfriendly events -- only a tentative hint of a pause in tightening by the Fed, stronger-than-expected April Employment Report, and renewed fears of bank problems -- as it was helped in part by stronger-than-expected corporate earnings releases.  Corporate earnings could be important this week, as well.  And,  help from a lower-than-consensus April CPI this week can't be ruled out.

Consensus looks for a still-high 0.4% m/m for both Total and Core April CPI.  A consensus print is more than possible.  But, a below-consensus print can't be ruled out.  To be sure, Total should rise by more than March's +0.1% as a result of higher gasoline prices.  But, food and utility gas prices should be soft again.  A below-consensus Core will likely require another low print for Owners' Equivalent Rent, a slowdown in Airfares and Hotel Prices, and flattish Used Car Prices.  A soft April CPI would encourage the market to expect a pause in Fed tightening at the June FOMC Meeting.

The April Employment Report, however, was too strong from the Fed's perspective.  Even taking account of the large downward revision to March, the 2-month average exceeds the pace needed to keep jobs in line with population growth (209k versus 100k).  The low 3.4% Unemployment Rate confirms a very tight labor market.  And, the 0.5% m/m increase in Average Hourly Earnings warns of the inflationary consequences of the latter.

If the +253k m/m April Payroll jump were just catch-up after the +165k March increase, then Payrolls should slow sharply in May.  But, so far, the Claims data don't support this possibility.  In particular, if Continuing Claims stay at their latest level, they would be below the level in the April Payroll Survey Week -- pointing to another speedup in job growth.  This relationship correctly predicted the speedup in April.  There are still several more weeks of Claims data to see before a complete picture is available.  Note that the May Employment Report will be released before the June FOMC Meeting.  So, while a below-consensus April CPI should encourage the idea of a pause in Fed tightening, the question of whether this will happen in June will remain.