US inflation data due Wednesday - previews

Author: Eamonn Sheridan | Category: News

As I am posting this USD/JPY is faliing again, but not below the overnight low as yet (circa 107.40)

It may well pierce there on the CPI data due later though from the US. there is much focus on today's report and what implications it'll have for the path of fres Federal Reserve rate hikes 

Due at 1330 GMT, along with reail sales for January (preview on that is here ... though the focus is inflation)   


  • We expect core CPI to increase at a more moderate pace in January after a steady gain of 0.239% m-o-m in December.
  • Our forecast for core CPI inflation is 0.2% (0.188%) m-o-m, which would lower the y-o-y change to 1.7% (1.682%) in January, from 1.8% (1.776%) in December.
  • December core CPI was partly boosted by temporary factors such as idiosyncratic jumps in rent data for certain metropolitan areas and positive payback from softness in prior months. As those temporary factors wane, we think that core inflation decelerated. slightly in January.
  • Moreover, although January core CPI has historically tended to outperform market expectations, new seasonal factors may appear to address such residual seasonality issues. 
  • In addition, methodological changes to the calculation of used vehicle prices should have a negative impact on January's CPI inflation.
  • For noncore components, we expect energy prices to move up modestly by 2.6% m-o-m, led by higher gasoline prices, while we think food prices probably continued their trend-line increase of 0.2% m-o-m. All in, our forecast for headline CPI is an increase of 0.4% (0.369%) m-o-m or 2.0% (1.960%) y-o-y. We expect CPI NSA to be 247.599 
  • Firming gasoline prices should help boost headline CPI by about 0.4% m/m in January. Basically, the rise in pump prices translates into a 2.5% seasonally adjusted gain in the CPI energy component.
  • Given tough year-ago comparables, the y/y rate drifts down to 2.0% from 2.1%.
  • Core prices appear poised to see a less eventful 0.2% gain, with the y/y rate drifting to 1.7% from 1.8%.
  • While there is likely to be significant focus on this report, the reality is that the inflation narrative is not poised to gather any real momentum until 2Q when the idiosyncratic effects from last year (wireless price wars, etc.) finally roll off the y/y calculation.
  • Given the drift up in oil prices, a weak dollar, and easing year-ago comps, we think headline inflation will get close to 3% y/y sometime in 3Q. This should prove transitory and headline prices will likely be back on either side of 2% by year-end. But the potential for the market to overreact to an inflation scare is non-trivial.
  • We expect headline CPI to rise by a soft 0.4% m/m (1.9% y/y) in January, aided by gains in energy prices. At the core level, we look for core CPI to increase 0.2% m/m (1.6% y/y). For the CPI NSA index, we look for a reading of 247.5.

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