Calling for a peak in inflation may be premature

Tuesday saw headline inflation print at the forecasted 1.2% m/m, higher than the 0.8% m/m for February. However, the core CPI moderated at 0.3%, lower than the forecasted 0.5% m/m and below February's 0.5%m/m. This temperance in the core number has some investors maintaining that US inflation has peaked. However, we believe this may be premature and proffer that more evidence is needed in this regard. Consider the chart for core CPI:


Source: www.tradingview.com

We have added an RSI to the core CPI chart. This indicator applies a measure of momentum to the tremendous appreciation of the series. In addition, it allows us to assess how extreme the move has been and if it is "running out of steam" per se. The RSI is above the 85 level (grey dashed horizontal). In the series above, this happened three times previously - 1969, 1974, and 1979. Moreover, 1974 coincides with the first oil crisis and 1979 with the second oil crisis. All three of these instances saw the RSI continue to appreciate over 90 (black dashed horizontal).

As an added layer of analysis, we have included a 9-period exponential moving average as a signal line for the RSI (blue line). After peaking above 90, we note that the RSI began its retreat, followed by crossing below the blue signal line (blue vertical dashes). These crossovers mark levels near or at the core CPI peaks for the periods (we note the lag in 1969).

Indeed, current core CPI levels are reaching excess and are approaching an apex. However, to maintain that the series has peaked is premature. Whilst it is still to be seen if core CPI's RSI will rise above 90 (it may not), a cross below the blue signal line will make us more comfortable with the declaration that inflation has topped.

Trade the News: View our Economic Calendar

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

Disclosure

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Risk Warning: Our service includes products that are traded on margin and carry a risk of losses exceeding deposited funds, if you are a professional client. The products may not be suitable for all investors. Please ensure that you fully understand the risks involved.

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}