#Gate广场五月交易分享 CPI is expected to hit a three-year high! Goldman Sachs warns data will be "even more explosive," inflation is not a short-term panic
Morgan Stanley Global Macro Strategy Head Matt Hornbach said that the consumer price index (CPI) report released on Tuesday will be a set of "more explosive" data. This is the first of a series of inflation data this week, which will collectively be included in the Fed's preferred inflation measure.
Hornbach stated on Monday, "Ultimately, what matters is how this set of inflation data we get this week will collectively shape the PCE (Personal Consumption Expenditures Price Index) inflation forecast. We have CPI, PPI (Producer Price Index), and import prices. All three influence the final PCE data in their own way, and of course, this is an important indicator for the Fed."
When policymakers hold their next meeting from June 16 to 17, the Federal Open Market Committee (FOMC) will have a series of inflation-related data to reference. The Fed has previously stated that it relies on the PCE price index as a guide for interest rate decisions.
As traders signal concern about inflation, U.S. Treasury yields have been creeping higher. Hornbach said that Morgan Stanley's current forecast is that the Fed will keep rates unchanged this year.
Bloomberg Economics expects that, driven by the Iran conflict, both overall CPI and core CPI for April will be pushed higher. Rent inflation is also expected to see a one-time surge as the U.S. Labor Department corrects data distortions related to the government shutdown last October. Economists forecast that after a 0.9% increase in March, overall CPI for April will rise 0.6 month-over-month, with a year-over-year increase of 3.7%. If true, this would mark the highest inflation rate since early fall 2023, when prices cooled from energy shocks caused by the Russia-Ukraine conflict. The so-called core CPI may rise from 0.2% to 0.3%, with a year-over-year increase of 2.7%. The U.S. Labor Department will release April PPI data on Wednesday. Import price data will be released a day later. However, Hornbach said these inflation pressures may not have fully transmitted to consumers, as it’s still unclear whether "companies are passing on these additional costs as you might think." He suggested that companies might be following strategies similar to those after Trump's "Trade War" tariffs. Many economists had expected higher prices paid by companies to be passed on to consumers, but this does not seem to have happened to the expected extent. Hornbach added, "So the question is, what will companies do with these additional costs now? Energy costs, infrastructure costs related to artificial intelligence? How much of these costs can they pass on?"
The Fed and investors face new challenges. Jordi Visser, head of macro research at 22V AI Nexus, wrote that this CPI report "may not just confirm yet another worrying inflation data point."
The trend over the past two months "looks more like 2022 than the deflation story the market has been telling itself."
In fact, there is growing concern that financial markets are choosing to ignore the current surge in prices, viewing it as a temporary event caused by the Iran conflict. Derivatives contracts hedging inflation risk are at their highest since October 2025, but still relatively moderate, while futures traders expect Fed officials to largely hold steady until the inflation storm passes. A strong, or even just consensus-matching CPI report, could shift market expectations.
Previously, inflation had been slowly retreating toward the Fed’s 2% target. But Middle Eastern conflicts have changed that picture, with core CPI excluding food and energy prices rising again. Visser pointed out that the continued rise in transportation and warehousing indices indicates that price shocks are spreading beyond the energy sector. "Oil is not the whole story, but it’s a big factor explaining why things are worsening, and the Strait of Hormuz remains closed," he said. "This is not characteristic of a short-lived inflation panic. When transportation, warehousing, and replenishment costs all rise simultaneously, this is what it looks like." From a policy perspective, Visser said the Fed "is in a very dangerous position," with inflation and a stable labor market both pointing toward rate hikes, while the U.S. fiscal situation is worsening. "This is no longer the textbook fight between the Fed and inflation. It’s a struggle between inflation control, debt repayment pressures, and political pressures to loosen monetary policy at all costs," he wrote, adding that the incoming Fed Chair Kevin Warsh’s desire to cut rates might "usher in an inflation boom mechanism by the end of this year."
Meanwhile, markets should prepare for the possibility that Warsh cannot implement easing, and the Fed may need to hike rates instead. Bank of America’s U.S. Rates Strategist Mark Cabana said in a report that the last rate hike cycle (during the post-COVID inflation surge) caused the S&P 500 to fall 25%, and this could happen again.
He also added that markets are underestimating the risk of rate hikes. Cabana wrote, "Compared to post-COVID, any actual Fed rate hikes now could be much more moderate. But still, we are concerned that if the Fed hikes to cool the economy and slow growth, risk assets will react negatively."
