CIBC: Fed Needs To Act Swiftly

Following the January CPI report, broad-based price increases, reflecting mostly strong demand, and no sign of Omicron denting service prices confirms that the Fed “needs to act swiftly to contain inflation, as wage pressures have only strengthened in recent months”.

• Strongest contributors from food, electricity, and shelter prices, with “increases in other categories ranging from used cars and apparel, to transportation services, added to the strength”.
• Food prices were boosted after what has been a tough year for agriculture as drought and bad weather have impacted production.
• Looking ahead, headline inflation will “likely accelerate further above the 7% mark next month”, while core inflation is “also set to accelerate” before base effects from April (in which the previous re-opening in 2021 took place) see annual inflation start to decelerate.
• They see core inflation as set to end the year at just above the 2% target.
• “Still, the Fed will be focused on the underlying acceleration in shelter prices and the tightness in the labor market as reason to take rates higher by 100bps this year, with the first 25bps hike coming in March”.