US Consumer Price Index (CPI) is the main scheduled data point, with core CPI expected at 0.27% month-on-month and headline CPI expected at 0.90% month-on-month due to higher oil prices.
Markets may discount a softer reading as temporary, while a stronger result could raise inflation worries and affect expectations for the US dollar.
March Inflation Outlook
The core forecast of 0.27% m/m is linked to firming goods prices as tariff pass-through continues. Services inflation is expected to be steady versus February, with shelter prices rebounding.
Attention is on whether higher energy costs are feeding into core inflation in March. Headline CPI of 0.90% m/m is expected to be driven mainly by energy.
Food inflation is expected to cool to 0.17% m/m. Risks to the CPI forecasts are described as tilted to the upside compared with a below-consensus core projection.
Personal Consumption Expenditures (PCE) prices for February matched market expectations, at 0.37% m/m for core and 0.38% for headline. The February figures are described as reflecting pre-Iran conditions, with core goods at 0.8% m/m.
Market Positioning Implications
We are now looking at the March 2026 CPI report, which showed headline inflation rising 0.6% while the core reading was a more moderate 0.3%. This mirrors the situation we saw in early 2025, where high energy prices were a primary concern for the market. Back then, we were bracing for a potential 0.9% monthly jump in the headline number, which kept the Federal Reserve in a very cautious stance.
The current divergence between the high headline inflation and the softer core print is creating uncertainty, which points towards higher market volatility. The Cboe Volatility Index (VIX) has already risen to 15.8, but there may still be value in using options to position for larger swings in currency and equity markets. We believe traders should consider strategies that benefit from sharp moves, regardless of the direction.
This sticky headline inflation makes it very unlikely the Federal Reserve will consider a rate cut in the near future. The Fed funds futures market is now pricing in only a 35% probability of a rate cut before the third quarter. Therefore, using derivatives on interest rate futures, like SOFR, to bet on rates remaining elevated could be a prudent move.
With WTI crude oil recently moving back towards $87 a barrel, the energy component of inflation will remain a key focus. The pass-through effects of these higher energy costs on the core inflation reading will be closely watched in the April report. We think traders should look at call options on major energy ETFs to hedge against further unexpected price increases driven by geopolitical tensions.
