US CPI Key Points
- The US CPI is expected to fall to 2.9% year-on-yearwith the “Basic” reading (ex-food and -energy) reaching 3.8% year-on-year.
- The recent rise in the “Prices” component of the ISM PMI surveys suggests that inflation could accelerate again this spring.
- USD/JPY testing key resistance at 149.40 ahead of report; a positive reading could lead to another leg higher in the pair.
When is the US CPI report released?
The US CPI report for January will be released at 8:30 a.m. ET on Tuesday, February 13, 2024.
What are expectations from the US CPI report?
Traders and economists expect the US CPI report to fall to 2.9% year-on-year as a headline, with the “basic” reading (excluding food and energy) provided in 3.8% year-on-year.
If these expectations are met, they would mark the lowest year-over-year readings for the two measures in almost three years.
US CPI Forecast
Going into the year, there was a clear “script” that traders and economists expected the U.S. economy to follow:
- Job growth would continue to slow and…
- Inflation would gradually retreat to the Federal Reserve's 2% target, causing
- The central bank will cut interest rates repeatedly, starting in March.
There has only been one problem with this: the economy didn't get the memo. Instead of following that script, we've seen spectacular employment numbers, inflation seemingly reaccelerating, and the Federal Reserve pushing back expectations of interest rate cuts in March. Tomorrow's US CPI report is the next big test to see if the budding trend of US economic exceptionalism in 2024 continues.
Digging deeper into the data, the headline CPI has clearly seen its decline over the past two quarters, with the year-on-year measure actually rising from 3.0% to 3.4% over the past six months. That said, the Fed is more concerned about the “core” CPI reading, which is considered more indicative of underlying price pressures and has continued to decline in recent months.
One of the best leading indicators of inflation is the “Prices” component of the manufacturing and non-manufacturing PMI surveys. Historically, a simple average of these two components has been a relatively reliable predictor of CPI readings 3 to 6 months out, as the following chart shows:
Source: TradingView, StoneX
While it won't necessarily affect the CPI dramatically this month, the most recent round of PMI surveys showed prices rising for 58.5% of respondents in the two surveys, suggesting that inflation could well rise as we We are approaching spring. This is certainly a concern for the Fed and may lead to a smaller-than-expected reaction even if this week's (lagged) CPI reading is below expectations.
Notably, Traders are not necessarily expecting a massive move following this month's CPI report.. Implied volatility measures in the forex market are hovering around 2-year lows amid the Lunar New Year holiday, and according to Reuters, options traders are pricing in an average of a 38-pip move and a 58-pip move. before the data. That said, with fewer traders at their desks than usual, there is certainly a chance for a huge move if the data really surprises relative to expectations.
Japanese Yen Technical Analysis – USD/JPY Daily Chart
As is often the case with US data, USD/JPY may have the “cleanest” and most logical reaction to this month's CPI data. Looking at the chart above, USD/JPY is consolidating after its break above the 148.70 resistance last week.
For this week, the key resistance level to watch will be the 78.6% Fibonacci retracement of the November-December decline near 149.40. If the bulls are able to break through that resistance level (potentially thanks to a better-than-expected US CPI report), the pair will have little technical resistance until it approaches 152.00. Meanwhile, a soft inflation reading and a bearish USD/JPY reaction could push rates below the previous resistance-turned-support at 148.70, opening the door for a deeper pullback below 148.00.