The biggest economic print of this week just occurred moments ago, with January’s Consumer Price Index (CPI) released — and hotter than expected on all counts. Headline CPI came in +0.5%, up 30 bps from an upwardly revised +0.1% the previous month. Stripping out volatile food and energy costs, the “core” read brought us +0.4%, up from an unrevised +0.3% in December.
Year over year CPI is what’s called the Inflation Rate, and this headline rose for the first time in seven months — to +6.4% from an expected +6.2% and a downwardly revised +6.2% the previous month. Core year over year did come down a tick to +5.6% from an unrevised +5.7% last time around, but still higher than the +5.4% analysts were expecting. This is the fourth straight move lower from what were 40-year highs.
This morning, analysts are talking more about another metric within CPI numbers, which is referred to as “super-core:” subtracting not only food and energy prices, but housing and shelter, as well as other areas like used cars. Here we’re still +0.7% for the month, +4.3% year over year — hotter than expected on both counts, and clearly more than double what the Fed sees as optimum inflation of +2%.
If you’re simply a fan of a robust U.S. economy, then all of this is good news: there is nary a recessionary element to anything we see here. Yet the inflation problem remains. While headline CPI year over year has come way down from last summer’s +9.1%, the mid-6%s is not where we want to be after nearly 500 bps of Fed tightening over the past 11 months. We know these interest rate hikes take time to work through the system of the economy, but current CPI figures remain hotter than both near-term and long-term estimates.
Priced in is still a March 25 bps hike and a 25 in early May. That would bring us to a Fed funds rate of 5.00-5.25% going into mid-2023. The question is: what happens then? Will we still be exponentially higher than the optimum +2% the Fed continues to insist it’s looking for? Is getting inflation down to +2% even possible anymore? These are the questions analysts are asking themselves this morning.
Market participants, on the other hand, treated this good news as… good news! The S&P 500 doubled moments after the report was released, with the Dow surging up more than 200 points and the Nasdaq over 100. We’ve since since seen these figures mediate a bit ahead of the opening bell — still positive, but mildly so, with what may be seen as a downward bias going into the regular trading session.
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January's CPI Increased Higher than Expectations
The biggest economic print of this week just occurred moments ago, with January’s Consumer Price Index (CPI) released — and hotter than expected on all counts. Headline CPI came in +0.5%, up 30 bps from an upwardly revised +0.1% the previous month. Stripping out volatile food and energy costs, the “core” read brought us +0.4%, up from an unrevised +0.3% in December.
Year over year CPI is what’s called the Inflation Rate, and this headline rose for the first time in seven months — to +6.4% from an expected +6.2% and a downwardly revised +6.2% the previous month. Core year over year did come down a tick to +5.6% from an unrevised +5.7% last time around, but still higher than the +5.4% analysts were expecting. This is the fourth straight move lower from what were 40-year highs.
This morning, analysts are talking more about another metric within CPI numbers, which is referred to as “super-core:” subtracting not only food and energy prices, but housing and shelter, as well as other areas like used cars. Here we’re still +0.7% for the month, +4.3% year over year — hotter than expected on both counts, and clearly more than double what the Fed sees as optimum inflation of +2%.
If you’re simply a fan of a robust U.S. economy, then all of this is good news: there is nary a recessionary element to anything we see here. Yet the inflation problem remains. While headline CPI year over year has come way down from last summer’s +9.1%, the mid-6%s is not where we want to be after nearly 500 bps of Fed tightening over the past 11 months. We know these interest rate hikes take time to work through the system of the economy, but current CPI figures remain hotter than both near-term and long-term estimates.
Priced in is still a March 25 bps hike and a 25 in early May. That would bring us to a Fed funds rate of 5.00-5.25% going into mid-2023. The question is: what happens then? Will we still be exponentially higher than the optimum +2% the Fed continues to insist it’s looking for? Is getting inflation down to +2% even possible anymore? These are the questions analysts are asking themselves this morning.
Market participants, on the other hand, treated this good news as… good news! The S&P 500 doubled moments after the report was released, with the Dow surging up more than 200 points and the Nasdaq over 100. We’ve since since seen these figures mediate a bit ahead of the opening bell — still positive, but mildly so, with what may be seen as a downward bias going into the regular trading session.