The CPI in the United States in January exceeded expectations across the board, and the core CPI did not fall back year-on-year, hitting the largest increase in eight months month-on-month
The US blockbuster inflation report for January 2024 is out. The US CPI in January exceeded expectations across the board, the core CPI did not fall back year-on-year, and the core CPI recorded the largest increase in eight months month-on-month. The latest data highlights the persistence of inflationary pressures in the United States and the bumpy road to fighting inflation. The market reacted strongly and pulled back on expectations of a Fed rate cut.
On Tuesday, February 13, data released by the U.S. Bureau of Labor Statistics showed that the US CPI rose by 3.1% year-on-year in January, the lowest level since June last year, but higher than the expected increase of 2.9%, and the previous value of 3.4% in December. US CPI rose 0.3% month-on-month in January, higher than expectations of a 0.2% increase and the previous value of 0.3%.
The Fed's core inflation, which excludes food and energy costs, is more focused, and the US core CPI rose 3.9% year-on-year in January, higher than expectations of 3.7%, unchanged from 3.9% in December, and did not fall further. December's core CPI year-on-year reading was the lowest since mid-2021. Core CPI rose 0.4% month-on-month in January, the biggest increase in eight months, higher than expectations of 0.3%, and higher than the previous reading of 0.3% in December.
Excluding housing and energy, prices in the services sector, excluding housing, rose 0.8% from December, the highest increase since April 2022, according to media statistics.
CPI sub-category
By category, the prices of food, car insurance, medical care, and housing costs all increased. Among them, the rise in housing prices is the most important reason for the higher CPI, and for the January data, housing contributed more than two-thirds of the increase in the overall CPI.
The new weight of the US CPI, which came into effect in January this year, places more emphasis on the service sector and light commodities. Prices in the housing sector, which accounts for about one-third of the CPI index, rose 0.6% month-on-month to the highest level in nearly a year and 6% year-on-year. Economists believe that the continued slowdown in housing inflation is key to bringing core inflation down to the Fed's target.
It is important to note that the Personal Consumption Expenditures (PCE) price index does not place as much emphasis on the housing sector as the CPI, which is one of the reasons why the PCE is getting closer to the Fed's 2% target.
Food prices are also on the rise, rising 0.4% in January. In grocery stores, the price of ham fell by 3.1% and the price of eggs rose by 3.4%.
Energy helped offset some of the inflation growth, falling by 0.9%, mainly due to a 3.3% decline in gasoline prices. The cost of electricity rose by 1.2%.
Used car prices fell by 3.4 percent, clothing costs by 0.7 percent, medical commodity prices by 0.6 percent, and airline tickets by 1.4 percent.
Market reaction
After the release of the US CPI data in January, the market's expectations for this year's interest rate cut retreated, and the futures of the three major US stock indexes fell rapidly before the market, US bonds fell, gold and silver fell sharply, and the US dollar index rose:
Swap contracts point to less than 100 basis points of Fed rate cuts in 2024, and the market fully priced in a delay in the Fed's rate cut from June to July, and the probability of a rate cut in March has dropped to almost zero. Nasdaq futures fell 1.33%, S&P 500 futures fell 0.90%, and Dow futures fell 0.57%. U.S. Treasury yields moved higher in the short term, with the 10-year yield rising more than 8 basis points during the day and the 30-year yield rising more than 5 basis points during the day. The U.S. dollar index extended its short-term gains to more than 60 points, or 0.50%, to 104.66.
Spot gold fell below the psychological level of $2,000 for the first time since December 13, 2023, falling more than 1% in a day. COMEX silver futures fell 3% during the day to settle at $22.08 an ounce.
Analyze reviews
After the release of the US CPI, US President Joe Biden said that the cost of inflation is getting worse and he cannot afford to wait longer.
Many analysts believe that the US CPI rose more than expected in January, highlighting the bumpy road to fighting inflation. The rebound in U.S. consumer prices at the start of the new year dashed hopes for a sustained decline in inflation, and the data further reduced the likelihood that Fed officials would soon start cutting interest rates. If inflation accelerates further, it could even reignite discussions among Fed officials that they will resume raising interest rates. Some policymakers have said they would like to see a broader easing of price pressures before cutting interest rates.
Nick Timiraos, a well-known financial journalist known as the "New Fed News Agency", commented that Goldman Sachs' expectation of a 0.38% increase in core CPI in the United States is very close to the actual release value of 0.39%. It is expected that the price increase at the beginning of the year will temporarily support the core CPI, and pharmaceuticals, auto insurance, tobacco, medical services and other aspects may support such expectations.
On Friday, the US CPI "annual overhaul" did not surprise as the previous year, with the revised annualized increase in core CPI in the fourth quarter unchanged at 3.3%, and the month-on-month CPI increase in December was revised down to 0.2% from 0.3%. The data was once seen as cementing the market's view that the Fed had made significant progress on inflation, confirming that inflation is slowing later in 2023.
In the face of the epic short squeeze staged by U.S. stocks since the beginning of the year, Nomura analysts previously pointed out that if Nvidia's earnings report explodes, or U.S. inflation rekindles, it may end this round of U.S. stock market rally. The overheating of the U.S. economy has led to a "resurgence of inflation", ending the market's "interest rate cut expectations", which may cause a sharp retracement of U.S. stocks.