The ranges of estimates are important in terms of market reaction because when the actual data deviates from the expectations, it creates a surprise effect. Another important input in market’s reaction is the distribution of forecasts.

In fact, although we can have a range of estimates, most forecasts might be clustered on the upper bound of the range, so even if the data comes out inside the range of estimates but on the lower bound of the range, it can still create a surprise effect.

CPI Y/Y

• 4.3% (21%)
• 4.2% (60%) – consensus
• 4.1% (19%)

CPI M/M

• 0.7% (2%)
• 0.6% (20%)
• 0.5% (63%) – consensus
• 0.4% (15%)

Core CPI Y/Y

• 3.0% (6%)
• 2.9% (67%) – consensus
• 2.8% (27%)

Core CPI M/M

• 0.4% (6%)
• 0.3% (63%) – consensus
• 0.2% (31%)

The focus will be on the Core figures. We can see the expectations are skewed to the downside as there are very few forecasters seeing a 3.0% Y/Y or 0.4% M/M reading. So, even if such numbers would be within the range of expectations, they could still be taken as hawkish surprises and trigger major moves in the markets.

The question for markets is now when and how many rate hikes the Fed might deliver by year-end. There’s just a 38% probability of a rate hike in September, so stronger data or a more hawkish than expected FOMC decision next week are going to bring expectations for a rate hike forward. Conversely, if the data was to surprise to the downside, we can expect some relief in the hawkish Fed fears.

This article was written by Giuseppe Dellamotta at investinglive.com.