The latest CPI data came in pretty hot. This is what it means for advisors

The latest Consumer Price Index data came in higher than expected Tuesday at a time when advisors are closely monitoring how key economic indicators could impact the Federal Reserve’s rates strategy.

Data from the U.S. Bureau of Labor Statistics released early Tuesday show that CPI, an important measure for inflation, increased 3.8% over the last 12 months, compared with expectations of a 3.7% increase. In April CPI increased 0.6%, after increasing 0.9% in March.

Chris Zaccarelli, chief investment officer at Northlight Asset Management noted that inflation is moving higher again as the war in Iran and the associated closure of the Strait of Hormuz impacted both the 0.6% number and core CPI, which increased 0.4%, compared to an expected increase of 0.3%.

Core CPI is the index for all items excluding food and energy.

“Given that inflation is heading in the wrong direction and the labor market is holding up, it’s very unlikely that the Fed will be able to lower interest rates any time soon and it’s possible that we may start pricing in rate hikes for next year,” said Zaccarelli, in a note.

Last week the latest employment data came in much better-than-expected, boosted by job gains in healthcare, transportation and warehousing, and the retail trade.

The April CPI number was “expectedly hot,” with the headline 0.6% number rising on the back of higher energy costs, according to Josh Jamner, senior investment strategy analyst at ClearBridge Investments. “This brings the two-month pickup inflation to 1.5%, the highest since 2022,” he said, in a note.

Fed fund futures markets are now pricing the chance of a rate hike as better than a coin-flip in March 2027, according to Jamner. “While rate hikes are possible should inflationary pressures continue to build, the potential for de-escalation of the conflict in the middle east and muted strength in the labor market should keep the Fed on hold for the time being, with cuts still more likely than hikes in 2027 in our view,” he added.

On Tuesday Lindsay Rosner, head of multi-sector investing at Goldman Sachs, briefly discussed the CPI numbers in relation to President Donald Trump’s nominee for Fed Chair Kevin Warsh, who is expected to be confirmed by U.S. Senate this week.

There has been of speculation about what Warsh’s confirmation could mean for the Fed’s rates strategy. Under outgoing Chair Jerome Powell, the central bank has repeatedly resisted calls from Trump to cut rates, much to the President’s chagrin.

“We had CPI, as we were all sitting here, which was a little bit hotter than, I think, consensus,” Rosner said, during Goldman’s RIA Professional Investor Forum in New York. “Those are the numbers that are going to drive what happens next, not one man.”

"What we heard from Warsh’s recent confirmation hearing is that the data is going to determine everything," Rosner said. “It is still a committee, it is not one man or woman who makes the decision,” she added.