MNI: 5 Things To Look For: US CPI Report

By Holly Stokes and Sara Haire

     WASHINGTON (MNI) - The Consumer Price Index will be released Wednesday,

with the median forecast among analysts in an MNI survey expecting a 0.3% rise

for headline CPI and a 0.2% gain for core CPI. If analysts are correct, this

will push the year-over-year rate down to 1.9% for headline and 1.7% for core

due to base effects.   

     Ahead of the release, we outline five themes for particular attention.

--HISTORY OF UNDERESTIMATING CORE

     There is a tendency for analysts to underestimate January core CPI, with

four overestimates vs nine underestimates in the past 20 years. This tendency is

especially noticeable in the last 10 years, where there have been only two

overestimates compared to the six underestimates. This suggests a possible

upside risk to the 0.2% estimated gain. However, it is worth noting that misses

tend to be very small, with only one miss in the past 20 years being larger than

0.1pp. 

--MARKETS AND ANALYSTS AGREE ON HEADLINE

Seeing as the markets and analysts agree that CPI should post a 0.3% gain, it is

worth noting that of the three months in 2017 when the market and analysts

agreed on a forecast, the first estimate for CPI always came in at expectations.

This suggests that Wednesday's report could come in as-expected with a 0.3%

rise.

--QUESTIONS ON RESIDUAL SEASONALITY LIFTING CORE

     Annual revisions last Wednesday trimmed December's strong 0.3% gain in core

CPI back to a more moderate, yet healthy 0.2% rise. Amherst Pierpont argues that

these new seasonal factors should mean that estimates of "another" 0.3% gain in

January should also be adjusted to a 0.2% - which may help assuage market's

anxiety of rapidly rising inflation. Prior to annual revisions, there was a

noticeable uptick in December, January, and February core CPI in recent years.

While annual adjustments try to account for shifting seasonal factors, there may

still be some residual seasonality that will keep January's core goods prices

up. If this holds true, it could be enough to spook sensitive markets,

reigniting fears of growing inflation and triggering more stock devaluation.

--FLU LIFTING MEDICAL, BUT SOFTER THAN DECEMBER

     Last month, medical care commodities were up 0.9% m/m after annual

revision, the largest percent change since August 2016. This surge in medical

care commodities correlates with with a sharp climb in the percentage of

hospital visits for influenza-like illnesses. In January, these visits continued

to be elevated and rise, though not at the rate that they did in December.

Accordingly, medical care commodities should continue to provide a healthy boost

to inflation, but likely not nearly as large as last month's surprise surge. 

Further supporting the likelihood of softer gains, in October 2009, when the

percentage of influenza hospital visits last reached the elevated levels seen in

the 2017 - 2018 flu season, medical care commodities, physicians' services, and

hospital services all came in at softer gains, after months of large prints led

by the mounting flu pandemic.  

--OIL PRICES RISE WHILE TEMPERATURES FALL

     The headline print for CPI could see a significant rise due to natural gas

prices hitting some of the highest prices ever seen. The natural gas storage

deficit was running 18% below the five-year average at the end of January,

suggesting the low supply pushed prices up further. Brent Crude Oil also hit $70

per barrel in the January 11 week, hitting a price not seen for 30 years. These

mounting prices were likely exacerbated by an unusually cold and winter-storm

ridden January, as home heating likely increased. And, as of January 26, the

average for global jet fuel was at $85.5 a barrel, up almost 8% from December,

according to IATA. This increase in price is likely going to be reflected in

airline fares in the upcoming months if not in January's report. 

--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com

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