US CPI Sticky / UK Not So
The key event for markets yesterday was the US CPI report, where the consensus was for an ease in price pressures, particularly in the headline figure. As it was, January’s headline CPI did ease, however, it was hotter-than-expected with the headline rising 0.3%mom (exp. 0.2%), and 3.1%yoy (exp. 2.9% prev. 3.4%). Core prices also rose, 0.4%mom (exp. 0.3%), and 3.9%yoy (exp. 3.7%, prev. 3.9%). Rising shelter and healthcare costs once again remained the driving factors: shelter accounted for more than two-thirds of the rise, with shelter coming in at 0.6% and lodging away from home (i.e. hotels) up 1.8%.
Core inflation, accounting for services ex-housing, rose 4.3%yoy from 3.9% in December: the highest reading since May 2023. We have seen higher-than-expected readings from the previous two January prints, so an upside surprise is not unusual.
The CPI prints have reinforced the view that the Fed will not look to cut in March, and futures markets dialled back expectations for a June cut from just above 50% ahead of the CPI release, to ~33% straight after. Odds for a June cut shifted to 63%.
On this side of the pond, UK CPI numbers released this morning showed a contraction in price pressures, at -0.6%, after December’s +0.4% surprise, and lower than market consensus of -0.3%. The yoy came in at 4%, matching December’s reading, and lower than 4.1% estimates. Core yoy was also lower at 5.1%, again unchanged from the prior reading, and 0.1% lower than consensus.
With the release, the Office for National Statistics (ONS) noted that: “The largest upward contribution to the monthly change in both CPIH and CPI annual rates came from housing and household services (principally higher gas and electricity charges), while the largest downward contribution came from furniture and household goods, and food and non-alcoholic beverages”.
Futures markets are now pricing less than a 4% chance of a rate cut in March, with a 21% chance in May and a 32% chance in June, of course, at the time of writing.
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