Deutsche: Upgraded CPI Forecasts On Sizzling Services

January’s CPI readings came in “well above” Deutsche’s expectations, and the data to them suggested that the price acceleration was “broad-based”.

• “While several categories surprised to the downside [eg lodging, new cars], the vast majority of the upside surprises were concentrated in categories that are relatively persistent such as primary rents and medical care services.”
• Additionally, they observed that the skew of outsized increases were to the upside (“the five largest upside outliers adding almost 20bps to the core print, while the five largest downside outliers only subtracted about 7bps.”
• Post-CPI release, they upgraded their inflation forecasts, seeing headline CPI peaking in February (7.7% Y/Y), end-2022 at 4.1% (Q4/Q4); core to peak in March (6.4% Y/Y) and end the year at 3.9%.
• As a result they also upped their 2022 Fed hiking view, as MNI noted Thursday, looking for 175bp in hikes this year (vs 125bp prior), incl 50bp in March. Though continue to see 3 25 bp hikes in 2023.