US CPI – A Mixed Bag, Proving Sticky & FEDSpeak remains “Higher for Longer”

Written by Stuart Cowell

US headline CPI climbed 0.5% in January, with the core up 0.4%, both exactly as expected. Those follow respective gains of 0.1% and 0.4% in December.

For the Headline, the January print ties October for the highest since June. The 12-month pace slipped to 6.4% y/y from 6.5% y/y. It has decelerated for seven straight months from 9.1% in June.

The Core rate slid to 5.6% y/y from 5.7% y/y, a fourth consecutive month of slowing. Component gains were broadbased.

  • Energy prices bounced 2.0% from -3.1% (was -4.5%) Gasoline prices increased 2.4% from -7.0% (was -9.4%).
  • Services costs edged up 0.6% from 0.7% (was 0.6%).
  • Housing costs increased 0.8% from 0.7% and owners’ equivalent rent was up 0.7% from 0.8%, with respective y/y gains accelerating to 8.2% y/y and 7.8% y/y from 8.1% y/y and 7.5% y/y.
  • The “super core” or the “Powell measure,” which is core services excluding rent was 0.3% from 0.4% (was 0.3%).
  • Food/beverage prices were up 0.5% from 0.5% previously.
  • Transportation bounced 0.4% from -1.6% with used car prices down -1.9% from -2.0%, new car prices at 0.2% from 0.6% and airline fares dropping -2.1% from the same -2.1% in December.
  • Medical care fell -0.4% from 0.3% (was 0.1%).
  • Apparel prices rose 0.8% from 0.2%.
  • Recreation prices increased 0.5% from 0.2%.
  • Education costs were up 0.4% from 0.1%.
  • Commodities rebounded 0.4% from -0.7%.

The 0.5% January US CPI rise with a 0.4% core increase rounded down from respective gains of 0.517% and 0.412%, leaving a slight overshoot of many assumptions, and a bigger overshoot of expectations prior to last Friday’s release of the new seasonal adjustment factors that raised late-2022 core inflation gains at the expense of lower figures in early-2022. The report suggests a 0.5% February CPI rise with a 0.3% core gain, leaving y/y gains of 6.1% for the headline and 5.4% for the core, following today’s respective January increases of 6.4% and 5.6%.

The USD, unsurprisingly gyrated on the mixed newsflow – EURUSD spiked over 1.0800, before dipping to 1.0716 and trades at 1.0765 currently. Cable holds onto daily gains, over 1.2200 and USDJPY holds over 132.00. The choppiness in other markets also rippled out along with the CPI report had several hits and misses to be digested. The headline and core measures were right on the mark, with energy a major component boosting prices. Meanwhile, the “super core” was a “miss” in a bullish way as it eased slightly.  However, inflation is still well above the FOMC’s 2% target which will keep them on the tightening path into 2H. Shorter dated Treasuries are either side of unchanged, but with the 2-year yield at 4.522% which is the highest since November. The 10-year yield has been mostly lower at 3.698%. The curve has inverted further to -83 bp from -82 bp yesterday. US500 futures have wobbled around unchanged levels too, having given up overnight gains at 4175 to 4132 now. 

About the author

Stuart Cowell

With over 25 years experience working for a host of globally recognized organisations in the City of London, Stuart Cowell is a passionate advocate of keeping things simple, doing what is probable and understanding how the news, charts and sentiment work together to provide trading opportunities across all asset classes and all time frames.