TD Securities expects April US CPI to rise, with core CPI forecast at 0.38% month-on-month and 2.8% year-on-year. Headline CPI is seen at 0.56% month-on-month and 3.7% year-on-year.
Core inflation is linked to a rebound in shelter costs after October was subdued due to a government shutdown. Higher airfares are also expected, linked to oil prices.
Key Drivers Behind The Forecast
Headline CPI is expected to be lifted by about a 5% rise in petrol prices. Food inflation is expected to pick up after being flat in March.
Headline inflation is forecast to rise by 0.4 percentage points to 3.7%, described as a three-year high. Core inflation is projected to peak near 2.9% in Q2, then ease gradually later in the year.
The CPI non-seasonally adjusted forecast is 332.714, compared with the market fixing of 332.780. The article notes it was produced using an AI tool and reviewed by an editor.
We recall that around this time last year, we were bracing for a hot April 2025 inflation report, with forecasts pointing to a headline number hitting a three-year high of 3.7%. The main concerns then were a rebound in shelter prices and an oil shock pushing up airfares. This set a nervous tone for the market, which was expecting inflation to peak near 2.9% in the second quarter of 2025.
Market Positioning And Risk Considerations
This time, the picture is different as we await the April 2026 data. Headline inflation has moderated, with the latest figures showing a 3.4% annual pace, indicating a much slower and more stubborn disinflationary path than previously hoped. While core inflation remains sticky at 3.6%, the aggressive price spikes we saw in 2025 have largely subsided.
The oil shock we anticipated back then has not fully materialized in the same way, with WTI crude prices recently stabilizing below $80 a barrel. This suggests less upward pressure on transportation costs compared to the 5% monthly surge in gasoline prices seen this time last year. This relative stability in energy gives us a different risk profile for the upcoming CPI release.
The Federal Reserve remains cautious, and with the unemployment rate holding steady below 4%, the market is now pricing in a high probability of interest rates holding steady through the summer. This creates opportunities in interest rate derivatives, such as options on SOFR futures, to position for a “higher-for-longer” environment. Traders should be prepared for stubborn inflation data to push back any expectations for near-term rate cuts.
Despite this rate uncertainty, the VIX is hovering near a relatively low level of 13, suggesting some market complacency. This presents a chance to buy protection cheaply before the next inflation print. Traders might consider buying call options on the VIX or other volatility-linked products as an inexpensive hedge against a potential market shock.
Given the persistent nature of core inflation, rate-sensitive sectors like technology and real estate remain vulnerable to any hawkish surprises. Consider protective strategies such as buying put spreads on ETFs tracking these sectors. This allows for defined risk while guarding against downside if the upcoming inflation data forces the Fed to maintain its restrictive stance.
