Investing.com - The upcoming US inflation report is anticipated to reveal that consumer prices continued at elevated levels in April, similar to those observed in March. The Consumer Price Index (CPI) for the month is predicted to have increased by 5% compared to the previous year, equalling the annual gain recorded in March based on Bloomberg's estimates.
Such an increase would be considerably higher than the Federal Reserve's target of 2%. In an effort to curb inflation, the Fed has been incrementally raising interest rates but faces potential risks of pushing the economy into a recession if rates are raised too rapidly or excessively. Recently, indications were given that there could be a pause before further hikes are implemented while waiting for more data ahead of their next meeting scheduled for June.
Consumer prices are estimated to have experienced a monthly growth of 0.4% during April when compared with March's rise of just 0.1%. On a core basis, which excludes fluctuating food and gas costs, April's figures show price increases of 0.4% over March and an annual increase of 5.5%, according to data from Bloomberg.
Economists at Wells Fargo (NYSE:WFC) believe that slowing economic activity will eventually lead to reduced inflation; however, they predict this journey back towards Fed targets will be lengthy and uneven due primarily to persistently high gas prices driving up overall figures month-to-month.
UBS analysts also foresee positive CPI results, which when combined with robust average hourly earnings, may increase the likelihood of another rate hike in June. However, they maintain that May's rate increase was likely the final one in this cycle.
The manner in which members of the Federal Open Market Committee (FOMC) communicate their opinions on future hikes remains uncertain and could potentially result in diverging views among committee members. This uncertainty could lead to increased market volatility moving forward.
Prior to Wednesday's release of inflation data for April, markets indicated an 83% probability that interest rates would remain unchanged by the Federal Reserve during its June meeting based on data from CME Group (NASDAQ:CME). These inflation figures follow last week's encouraging jobs report, showcasing a durable yet slowing labor market and providing investors hope for a pause in future Fed rate hikes.