Both Commerzbank and Société Générale are wary of the US CPI data for January due later today. Analysts at both both banks say the expected declines may not be enough to reassure the Fed that inflation is on a sustained downward path.
- Fed officials want more evidence inflation is on a sustainable path back to 2% before they start easing.
- Tuesday’s US CPI report should only marginally add to that evidence, as we expect core inflation to ease by only 0.1pp to 3.8% YoY (0.3% MoM) while we forecast a decrease in headline to 2.9% YoY from 3.4%.
- We expect the core rate, i.e. consumer prices excluding energy and food, to rise by 0.3% from the previous month and thus at the same pace as in November and December.
- Inflationary pressure continues to come primarily from rents.
- As energy prices are likely to have fallen, we expect the overall price index to rise by only 0.2%.
- If our expectations come true, the figures would not provide a clear indication. This is because they would certainly not be high enough to call the downward trend into question, but would also not indicate any clear progress, even if the annual rates are likely to fall slightly – depending on the revisions.
- We assume that the Fed will not cut interest rates at the next meeting in March. However, it is likely to do so at the following meeting in May.
- US CPI data due Tuesday: here are the ranges of estimates (and why its crucial to know)
- Federal Reserve 'insider' on what to expect for the US CPI data due Tuesday
The Fed meets next on March 19 and 20. Expectations are once again for an on hold decision.