CPI Falls, Palantir Shares Rise: Markets Prepare for US Inflation Report

The U.S. Bureau of Labor Statistics reported Tuesday that the Consumer Price Index (CPI) came in at 6.4% for the 12 months up until the end of January, slightly down from the previous month's 6.5% level but higher than the 6.2% that economists were expecting.^[0] This marked the seventh straight month of year-over-year declines, yet prices were still higher than in December, as costs rose for some items including fuel, food, and clothing. Core CPI, which excludes volatile food and energy prices, was up 0.4% on a monthly basis, faster than the 0.3% monthly increase seen in December.

Previously, the markets and the U.S. Federal Reserve had differing opinions on upcoming rate increases.^[1] In the last seven days, the markets have moved to conform with the Fed's outlook, expecting an additional increase in March and possibly one in May too.^[1] This may be in part due to January’s strong jobs numbers reducing recession chances but could also reflect certain fears around January's CPI report.^[1]

The Inflation Nowcast from the Federal Reserve Bank of Cleveland is forecasting a higher-than-anticipated Consumer Price Index (CPI) report.^[2] Per the Cleveland Fed's model, headline CPI is expected to increase by 0.65% month-to-month and 6.5% year-over-year as of Monday.^[2] The core CPI tracker is forecasting a 0.46% monthly rise and a 5.6% year-on-year increase.^[2] Core CPI, excluding the volatile food and energy components, is expected to show a 0.4% increase for the month, matching the 0.4% increase (revised upwards) in December. This indicator is closely monitored by the Fed.

American equities closed significantly up on Monday as market participants gauged a variety of signs for what the release of the consumer price index could illustrate.^[3] Bill Smead, chief investment officer at Smead Capital Management, said in an interview with CNBC that “We have 92 million people between 22 and 42, and they're all going to spend their money on necessities the next 10 years, whether the stock markets are good or bad.”^[4]

Shares of Palantir Technologies Inc (PLTR) soared by over +17% in pre-market trading following the release of the company's favorable Q4 results, and its projection of achieving profitability in 2023.^[5]

0. “Annual Inflation Cooled Slightly in January as Pace of Moderation Levels Off” The Wall Street Journal, 15 Feb. 2023, https://www.wsj.com/articles/us-inflation-january-2023-consumer-price-index-f080e30b

1. “What To Look For In The January 2023 Consumer Price Inflation Numbers” Forbes, 7 Feb. 2023, https://www.forbes.com/sites/simonmoore/2023/02/07/what-to-look-for-in-februarys-upcoming-consumer-price-inflation-numbers/

2. “Why January's CPI report could deal a massive blow to the stock market” MarketWatch, 13 Feb. 2023, https://www.marketwatch.com/story/why-januarys-cpi-report-could-deal-a-massive-blow-to-the-stock-market-296cfe28

3. “S&P Futures Tick Higher Ahead of Key U.S. Inflation Data” Barchart, 14 Feb. 2023, https://www.barchart.com/story/news/14179822/s-p-futures-tick-higher-ahead-of-key-u-s-inflation-data

4. “U.S. inflation is likely ‘far stickier' and could last a decade, Bill Smead says” CNBC, 14 Feb. 2023, https://www.cnbc.com/2023/02/14/bill-smead-us-inflation-is-far-stickier-and-could-last-a-decade.html

5. “U.S. CPI, BoJ Governor, Palantir, and SPR release – what's moving markets By Investing.com” Investing.com, 14 Feb. 2023, https://www.investing.com/news/economy/us-cpi-boj-governor-palantir-and-spr-release–whats-moving-markets-3002601