Daily Commentary BY THE CURVE TEAM –

CPI Outlook Clouded By Data Sample

29th of April, 2020

CPI data released today is expected to buck the recent trend of large data swings.

Economic shocks are rarely confined to sample periods only. The CPI release today is expected by the market to show a steady read if not a slight uptick in inflation. Despite this seeming counter-intuitive, it is a result of the sample period and a compounding of opposing factors.

The lockdowns, which can be argued have had negative impacts on not only volumes but also prices, as retailers look to discount goods to increase sales. However, this behaviour would only have occurred at the back end of the sample period or the last few weeks of Q1. That means the effects in that short period, even if large, will be relatively smaller over the larger 90 day window. By the same token, data for Q2 out in 3 months time may only contain an impact for the first month or two depending on how fast the lockdown measures are lifted. It is likely that Q2 would see a longer and more sustained impact but that is still to be seen.

In addition to the sampling issues, also relevant are the basket of goods and services used to measure CPI. We saw during Q1 a large spike in volumes of groceries and also some evidence of price increase for some cleaning and hygiene type goods. On the counter to that we have seen large moves in fuel prices but again that has for the most part been outside of the sample window.

The key takeaway from today’s release will not necessarily be the headline or even trimmed mean numbers but the more granular look at how prices have moved for the component goods. The movement of the key categories will give a good insight into how prices were trending prior to the shock and should give an indication of a baseline. We are all well aware anecdotally of how prices have moved during the shock.

Matthew Dunshea

Client Relationship Manager