The most important number for financial markets is falling

Inflation in the US is currently the most important number for financial markets. It has just fallen for the ninth time - to the level of 5 percent. The level of core inflation, which stands at 5,6%, remains worrying.

CPI down but...

Inflation in the US is important because it now influences most processes in the financial market, from the Fed's interest rate decisions to recession risk. The latest reading shows a decline in consumer inflation (CPI) to 5 percent, however, the increase in core inflation to 5,6 percent remains worrying. CPI inflation is falling because commodities are getting cheaper, while core inflation proves that inflation is rooted in the economy and points to price growth processes unrelated to changes in commodity prices. Interestingly, both indices operate on a different basket of goods, so core inflation may, as it is currently, stay higher than the CPI.

Used cars are more expensive not only in Poland

Higher core inflation may be an obstacle to a faster fall in inflation over the course of the year. This is the effect of rising prices of used cars and a gradual slowdown in housing construction. Calculated by eToro the real-time inflation index points to short-term increases, but within a broader context of declining inflationary pressures. Five of the 5 indicators of rising prices have increased in recent weeks, including the ISM employment and wage indexes, as well as the prices of used cars and gasoline.

The declines are led by supply chain ratios, rents, JOLTS and inflation expectations. As part of our index, we track 6 segments affecting the level of inflation: work (employment of ISM, JOLTS), flats (Zillow rents, NAHB index), towary (used cars, Manufacturing ISM prices), towary (gasoline, raw materials), supply chains (supply chain index, container rates) and oinflation expectations (Michigan poll, Break-evens).

This could mean that FED will decide on another “safeguard” interest rate hike on May 3. In addition, investors are already predicting that the first rate cuts will take place this year, which may result in a faster recovery of the V-shaped capital market. This is why we are currently focusing on long-term assets, such as big-tech, traditional defensive instruments and bonds.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.