Morgan Stanley also shouted! U.S. CPI on Wednesday is expected to be "significantly lower than expected"

This Wednesday, the highly anticipated US CPI inflation data will be released. Last month, both the month-on-month and year-on-year CPI increases exceeded expectations, severely impacting market expectations for interest rate cuts. Will the April CPI continue to rise, dampening expectations for rate cuts?

Seth Carpenter, Chief Economist at Morgan Stanley, pointed out that housing inflation accounts for 40% of core CPI and 18% of core PCE. Therefore, regardless of how housing inflation moves, the entire CPI data may follow suit.

The bank believes that current rental data is very weak. Despite a surge in immigration last year, the vacancy rate for multi-family apartments is approaching historical highs, signaling a downturn in housing inflation. The US CPI on Wednesday is expected to be "significantly lower than expected":

In the past three months, there has been a "lack of further progress" in combating inflation. For PCE inflation, goods have driven a large part of the growth, with computer software, videotapes, and clothing contributing to 2/3 of the inflation acceleration. Inflation is specific, not general.

In fact, using the weight of CPI, core goods inflation has been negative for two out of the past three months, indicating more direct downward potential. The supply chain has largely recovered, and first-quarter GDP data shows inventory adjustments.

Inflation in the service sector outside of housing has also shown some inflationary pressures. Over the past few months, the investment management and investment advice components of financial services have brought surprises. However, these components are noisy and to some extent related to stock price fluctuations.

Auto insurance inflation has been more sustained, but insurance companies are catching up with higher costs faced in recent years. This impetus does not reflect the current economic situation and is beginning to fade on its own.

Morgan Stanley also pointed out that previous seasonal adjustment factors led to first-quarter inflation data being higher than the actual situation, which will be corrected later:

Our US team recently found that seasonal adjustments may have exaggerated inflation in the first quarter of this year, indicating a rebound in the future. Taking all these factors into consideration, inflation should decline this year... When inflation declines, the Fed will begin cutting rates.

Standard Chartered analysts had previously stated that housing inflation may soon decline, pulling down core inflation. This view was also agreed upon in a recent report.

The CPI report on Wednesday will be crucial for the timing of the first rate cut. Since the beginning of this year, the market had priced in nearly 7 rate cuts of 25 basis points, but the current pricing is only slightly lower than two cuts, with the start of rate cuts pushed back to September.

Morgan Stanley expects the month-on-month increase in April CPI to be 0.29%, with rental inflation slowing down, core goods prices slightly decreasing, and a slight reversal in the unexpected rise in service inflation