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MNI US CPI Preview: Core Services Ex Shelter Keenly Watched

Markets are as usual keenly focused on core CPI after November's downside surprise, watching for any further softness in core services excluding shelter

HomepageMarketsFOMC Calendar Market News

EXECUTIVE SUMMARY

  • Core CPI inflation is seen nudging up to 0.3% M/M in December after surprising lower with 0.20% in November when the three main areas of core - shelter, services ex shelter and goods - all moderated.
  • OER and tenants’ rents could see a modest dip but barring no surprises there, attention is likely most firmly on core services excluding shelter with its continued FOMC focus, and then any further goods deflation.
  • Market expectations have tilted closer to another stepdown to a 25bp hike on Feb 1 (31bp priced) on softer than expected AHE growth within payrolls and a significant miss for ISM services as new orders slumped.
  • We see high sensitivity to surprises in either direction, especially if in stickier, less idiosyncratic categories.
  • The historically low u/e rate gives hawks something to build upon if an upside surprise, but might need to be followed by strong composition-adjusted wage growth in measures released later this month to lock in another 50bp hike, whilst a downside surprise could further cement a 25bp hike with a resulting relief rally.

PLEASE FIND THE FULL REPORT HERE:

USCPIPrevJan2023.pdf

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EXECUTIVE SUMMARY

  • Core CPI inflation is seen nudging up to 0.3% M/M in December after surprising lower with 0.20% in November when the three main areas of core - shelter, services ex shelter and goods - all moderated.
  • OER and tenants’ rents could see a modest dip but barring no surprises there, attention is likely most firmly on core services excluding shelter with its continued FOMC focus, and then any further goods deflation.
  • Market expectations have tilted closer to another stepdown to a 25bp hike on Feb 1 (31bp priced) on softer than expected AHE growth within payrolls and a significant miss for ISM services as new orders slumped.
  • We see high sensitivity to surprises in either direction, especially if in stickier, less idiosyncratic categories.
  • The historically low u/e rate gives hawks something to build upon if an upside surprise, but might need to be followed by strong composition-adjusted wage growth in measures released later this month to lock in another 50bp hike, whilst a downside surprise could further cement a 25bp hike with a resulting relief rally.

PLEASE FIND THE FULL REPORT HERE:

USCPIPrevJan2023.pdf