The US Bureau of Labor Statistics (BLS) will release the most important measure of inflation, the US consumer Price index (CPI), on Tuesday 13 February at 13:30 GMT. As publication time nears, here are the forecasts from economists and researchers at the 10 major banks for the upcoming United States inflation print for January.
The headline is expected to grow at a slower pace of 2.9% year-on-year from December's 3.4%, while core – that excludes volatile foods and oil prices – expected 3.7% year-on-year vs. previous disclosure 3.9%. On a monthly basis, markets expect headline and core CPI to have risen steadily by 0.2% and 0.3% respectively.
We expect core CPI inflation to rise by 0.2% month-on-month in January and headline inflation by 0.1% month-on-month.
We expect the core rate, i.e. consumer prices excluding energy and food, to rise by 0.3% from last month, the same pace as in November and December. Inflationary pressure continues to come primarily from rents. As energy prices are likely to have fallen, we expect the overall price index to increase by only 0.2%. If our expectations come true, the numbers would not provide clear information. Indeed, they would certainly not be high enough to challenge the downtrend, but they would also not indicate any clear progress, although annual rates are likely to fall slightly – depending on revisions. We assume that the Fed will not cut interest rates at the next meeting in March. They are likely to do so at the next meeting in May.
We expect CPI inflation to remain relatively subdued (0.1% month-on-month) with further declines in gasoline prices and renewed declines in used car prices, offsetting continued stiffness in services inflation (housing rents and healthcare). Headline annual inflation is expected to drop to a symbolic 2-handle for the first time since early 2021.
We expect headline gains to slow to 0.2% month-on-month from 0.3% in December, but expect core growth to remain at 0.3%. This would correspond to a drop in core year-on-year CPI inflation of two-tenths to 3.7%, while headline inflation would fall by four-tenths to 2.9%. The three-month annualized rate would rise by two-tenths to 3.5%, while the six-month annualized rate would increase by a tenth to 3.3%, largely due to the benchmark.
We expect overall CPI growth (YoY) to fall below 3% for the first time in nearly three years (from March 2021). Most of this slowdown is expected to be driven by lower energy prices and further declines in food price growth. Core price growth, which excludes food and energy products, should slow less – we expect 3.8% year-on-year in January from 3.9% in December. However, a disproportionate share of this increase still comes from higher rents. Shelter cost growth will continue to slow as lower market rents are gradually reflected in rentals. Commodity price growth slowed back to around zero as the impact of earlier acute global supply chain disruptions eased.
We expect core inflation to remain relatively unchanged at 0.3% month-on-month in January, with headline inflation likely to slow by a tenth to 0.1%. Our unrounded CPI forecast of 0.27% month-on-month suggests a narrow increase of between 0.2% and 0.3%. Our projections suggest that inflation was likely to decelerate again year-on-year in January, as we expect headline inflation to ease to 3.0% (after 3.4% year-on-year in December) and moderate to 3.8% in headline ( after 3.9% in January).
The energy component probably had a negative impact on the overall index, limiting its monthly value to only 0.2%. If we are right, the y/y rate could fall from 3.4% to a 7-month low of 3.0%. Core prices could show a 0.3% monthly progression, led by a further increase in the shelter component. This would translate into a 1 tick drop in the 12 month rate to a 32 month low of 3.8%.
Fed officials want more evidence that inflation is on a sustainable path back to 2% before they start easing. Tuesday's US CPI report should only marginally add to that evidence, as we expect core inflation to ease just 0.1 pp y/y to 3.8% (0.3% m/m), while we forecast headline inflation to ease to 2 .9% from 3.4%.
We expect inflation to continue to decline and expect headline CPI to rise 0.2% in January, which would push the year-ago pace to 3.0%. Falling gasoline prices and a moderation in grocery price growth should keep headline earnings in check. Core inflation likely continued to cool more slowly last month, and we expect core CPI to rise 0.3%, down from a 3.7% pace a year ago. Finally, we expect inflation to cool further this year, albeit more slowly than in 2023, and we believe price growth will still slightly overshoot rather than undershoot the Fed's target. Inflation data will continue to garner most of the Fed's attention this year as it tries to fine-tune the exact timing of rate cuts. We continue to believe that the first cut will occur in May, although based on recent data, the risks seem to lean towards June rather than March.
Much to the Fed's delight, the CPI is getting boring again. We expect more of the same in the January CPI report. Core inflation will remain in a range roughly consistent with the target, coming in at 0.3% month-on-month, and headline inflation should ease slightly to 0.2% month-on-month. The Fed will pay close attention to the composition and look for more progress from services inflation. But they may not see much progress in that rotation this edition as time continues to be on their side. The rebalancing of the used car market and the projection of low Chinese import prices should keep a lid on the prices of basic goods and moderate the impact of higher transport costs.