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All eyes are on this inflation number, which could have the biggest gain in nearly a decade

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Key Points
  • The consumer price index for April will be reported on Wednesday at 8:30 a.m., and is expected to be the hottest in nearly 10 years.
  • Economists have said the jump in inflation looks larger because of the base effects of last year when prices were weak due to the pandemic shutdowns.
  • The specter of inflation has been spooking investors, so any surprise the upside could stress the market.
People buy groceries on a Walmart store on August 23, 2020 in North Bergen, New Jersey.
Kena Betancur | VIEW press | Corbis News | Getty Images

Consumer inflation data for April is expected to show the biggest year-over-year gain in nearly a decade.

The anticipated 3.6% jump in the headline consumer price index in April would be the largest since Sept. 2011. CPI is expected to be up 0.2% month-over-month, when the data is released Wednesday at 8:30 a.m. ET, according to Dow Jones. That compares to March's 0.6% increase, or gain of 2.6% year over year.

On a core basis — which excludes food and energy — the CPI is expected to have increased by 0.3% or 2.3% year over year.

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For a market already spooked by the specter of inflation, the CPI could take on added importance if it shows a bigger increase than anticipated, particularly in the month over month figures.

"There could be a knee-jerk reaction in the market," said Mark Zandi, chief economist at Moody's Analytics. But he said the Fed would take a higher number in stride and the sudden rise should be transitory.

"The things I would look at are rent growth and healthcare costs," he said. "I would expect rent growth starts to pick up. Health care will likely remain low."

Zandi added that one area he expects to see a big surge is used cars, with prices increasing 70% from a year earlier.

Don't forget about base effects

Economists have been expecting the April data to show a big year-over-year increase to account for the base effects from last year when prices were weak due to the pandemic and economic shutdown.

The Fed has maintained that the pickup in inflation will be temporary.

Kevin Cummins, chief U.S. economist at NatWest Markets, said he is expecting headline inflation year-over-year to peak at 3.9% in May before beginning to go back down in June.

For April, he expects a 3.6% jump. "I think if there's a risk, it's probably to the upside on the core," Cummins said. "We'll see the base effects even more prevalent than we saw in March."

The CPI report comes as market expectations for inflation have been rising. According to Bleakley Advisory Group's Peter Boockvar, the market expectations is that inflation over the next five years will average 2.71%.

"The risks are now to the upside in these inflation stats, as one who believes the risk is not transitory," said Boockvar, chief investment officer at Bleakley.