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The market's worries over inflation have eased, but November price data due out on Wednesday will be a bigger deal for stocks than investors may think, Bank of America said in a note on Monday.

The November consumer inflation index report will be published Wednesday morning. Economists expect the data to show prices rose 2.7% on a year-ver-year basis, slightly hotter than October's 2.6% increase .

Bank of America strategists said the inflation data could be especially impactful for stocks after months of muted reactions to CPI readings.

Heading into the latest inflation update, options pricing is implying a 0.64% move in the S&P 500 on Wednesday, which would mark the smallest CPI-related move since inflation began rising in 2021, according to the bank.

And while economic growth concerns have ebbed since rearing their head over the summer, inflation appears to be inching up again. The strategists pointed to the Bloomberg Inflation Surprise Index, which indicates that the most recent inflation data marked the biggest upside surprise to CPI since May.

"With that backdrop, we believe the two remaining major events of the year (CPI and FOMC) can set the near-term direction of the market. A softer print can clear the path for a year-end rally, with the second half of December being the second strongest period of the year," strategists said, adding that stocks rose an average of 1% in the second-half of the month. "On the contrary, a firmer print can revamp volatility, especially after the 5% post-election rally."

Importantly, the inflation data will influence the Fed's next interest rate decision. An upside surprise would likely raise the likelihood that the Fed would pause its rate-cutting cycle sooner than markets expect.

"We think that the CPI data will be soft enough to confirm a cut in December. That said, the risk is probably one-sided. A firmer-than-expected report would likely result in more cuts priced out than a softer-than-expected report would lead to more cuts priced in given uncertainty over the policy landscape," BofA added.

Markets see about an 86% chance the Fed will cut interest rates another 25 basis points at its meeting next week, according to the CME FedWatch Tool .

Beyond that, however, there is less certainty. The odds of another cut in January have declined to about 22%, while investors see a 67% chance rates are unchanged after a December cut.

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