MNI US Inflation Insight: Hot Start To 2025, Details Aside

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EXECUTIVE SUMMARY

• Sequential price pressures in the January CPI report exceeded all expectations, but the hawkish impact was blunted 24 hours later by relatively benign PPI details.
• The core CPI reading of 0.446% M/M sa (MNI unrounded analyst median 0.30, av 0.29) was only partially offset by recent downward revisions in Q4 data.
• The reading reflected stronger pressures in all major sub-categories in January, with “supercore” inflation accelerating sharply, and housing ticking higher.
• And while “residual seasonality” may have played a part in boosting January inflation, the Y/Y reading – based on non-seasonally adjusted data – at 3.26% exceeded consensus by 0.1pp, and the NSA M/M data wasn’t particularly strong.
• Following the data, Fed Chair Powell cautioned in his congressional testimony that while CPI “was above almost every forecast”, it would be “wise” to wait for the PPI report which would help fill in the gaps for PCE which is as he said “a better measure of inflation”.
• And while the January PPI aggregates came in above expected, the broad array of individual price categories that feed into PCE came in significantly softer than most had anticipated, spurring analysts to downwardly revise their core PCE estimates to well below the CPI equivalent – if still too high for comfort.
• While a March Fed cut had already looked out of the question, the CPI release pared implied 2025 cumulative rate cuts from 37bp to just 25bp, but PPI details saw a partial reversal to 32bp.
• With no clear disinflationary progress, the next rate cut is now seen by markets in October, vs September prior to this week’s data.
• Attention turns to import price data to round out January core PCE estimates, which following CPI and PPI look centered in the mid-0.20s% M/M. That would be an uptick from 0.16% prior but would still translate into a slowdown in the Y/Y rate to 2.6% from 2.8%.