U.S. headline inflation likely to have eased sharply in April on large fall in energy prices

The U.S. April inflation data is set to release tomorrow. According to a Barclays research report, the CPI inflation is likely to have eased sharply by 0.8 percent sequentially in the month. This would be its largest monthly fall since 2008. The fall in headline inflation is likely to have been weighed in by a large fall in energy prices driven by gasoline.

Energy prices are likely to have fallen 10.9 percent month-on-month, whereas food prices are expected to have continued to rise at a trend-like pace as solid sales at grocery stores would possibly keep food commodities rising at a sound pace. Also, the disruptions to the restaurant industry might not be reflected in food services prices collected by the BLS.

However, the softness in the April report is expected to have spread beyond energy, with prices of core goods and services likely to have dropped 0.3 percent. Within core CPI, goods prices are expected to have fallen for a second straight month with the softness widely based throughout categories. Core services components are expected to have performed poorly, in particular airline fares and hotels.

“We do not expect rents and OER to fall off a cliff as a result of a spike in reported zero payment. But increased forbearance from landlords could lead them to weaken below the trend-like growth of recent months. In all, we forecast shelter to fall by 0.2 percent m/m owing to modest declines in rent and OER, as well as another sharp drop in lodging away from home”, added Barclays.