University of Michigan inflation forecast may have more influence on rates than CPI

Investors are closely watching the release of the U.S. consumer price data on Thursday. Inflation figures that will come out on Friday could be of high importance in determining the near-term outlook for global markets.

According to Bloomberg, the decline in Consumer Price Index (CPI) will be welcomed by investors. The University of Michigan's data on U.S. inflation expectations for 5-10 years that is expected on Friday is more likely to attract attention of Federal Reserve officials who fear a prolonged rise in prices. Long-term inflation expectations climbed to 2.9% in October. A further index rise could lead to a tighter Fed policy, which would put pressure on all financial assets.

Richmond Fed President Thomas Barkin highlighted Thursday will not hesitate to keep raising rates. The central bank's policy is aimed at returning to the inflation target as soon as possible and keeping inflation expectations stable. 

According to Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities Inc. in Singapore, U.S. government bond yields could increase if the CPI is in line with estimates and long-term inflation expectations hit their highs since 2011.

He said that markets shouldn’t react significantly to CPI at projected levels. However, if the University of Michigan figures retest the January and June highs, the rate hikes haven’t tackled inflation as it was expected.