US CPI today – event or non-event?

Today's release of Consumer price index (CPI) numbers will be most watched by traders and investors ahead of this month's FOMC rate decision. CPI is scheduled to be released at 12:30 GMT. However today's CPI may turn out to be a non-event for the market.

Why important?

• FED's dual mandate is price stability and maximum employment. However, Unemployment rate has now reached 5.1% in US, which is considered as very close to long term level. That leaves inflation to be most vital for first subsequent hikes.

• Moreover this is key high profile release before FOMC later the month. So the reaction stands very crucial. Moreover it might even influence policy makers.

Past trends -

• CPI fell to negative territory in final quarter of 2014. In January CPI fell by -0.7% on monthly basis, mostly due to lower energy prices. CPI fell by -0.1% YoY in January.
• CPI has recovered from negative since then, with monthly CPI rising more than 0.22% (average) since then. In August CPI deflated by -0.1%.
• Yearly CPI growth staying below zero till April has recovered to +0.2% in July and August.
• However, core CPI has been showing remarkable resilience, monthly growth not falling below since February 2010. In July prices grew by 0.1% and 1.8% from a year back.

Expectation today -

• CPI is expected to fall to -0.2% m/m and drop to -0.1% yearly basis.
• Core CPI is expected to grow at 1.8% on yearly basis.

Impact -

• CPI may not be a major mover today as deflation is very much expected. Unless there are major changes both to the downside or upside major volatility is unlikely.
• Market after last night weaker than expected retail sales data more convinced that FED is unlikely to hike rates in near term.
• While little improved reading may get shrugged off, worse than expected data might reinforce dollar selloffs.

FXCM US Dollar index is currently trading at 11867, on its way to third consecutive weekly decline since March-April this year.