January Inflation Expected to Rise: Fed to Continue Interest Rate Increases
Economists are expecting the US consumer price index (CPI) to rise 0.4% in January, according to a survey by The Wall Street Journal. Core CPI, which strips out prices for food and energy, is forecast to increase 0.3% during the same period. Annually, the CPI is forecast to slow to 6.2% from 6.5%, while the core CPI is expected to slide to 5.5% from 5.7%.
The Federal Reserve has been raising interest rates to try and cool inflation, which hit a 40-year high last year. However, the January jobs report showed a stronger-than-expected labor market, and this has caused some Fed officials to express concern that wages could start to rise and lead to greater inflationary pressures.
The Fed chair, Jerome Powell, has acknowledged that the spike in inflation is easing, but earlier this month he indicated that the central bank will continue to raise interest rates as it works to bring price rises back to the Fed’s target rate.
The higher forecast for inflation “reflects our view that the Fed will need to see material slowing in labor market outcomes to convince itself that wages are on course to return to rates of increase consistent with 2% inflation, and that such evidence will not be evident until midyear,” Barclays economists wrote.
Inflation is still more than three times too high for the Fed's liking and Tuesday's CPI report will be long-awaited. The Cleveland Fed’s Inflation Nowcast is predicting a hotter-than-consensus CPI report, with headline CPI set to rise 0.65% month over month, or 6.5% on a yearly basis, and core CPI estimated to increase 0.46% monthly and 5.6% year over year.
Stocks finished sharply higher on Monday as investors assessed the various signals for the release of consumer price data. Meanwhile, Marriott International (MAR) rose 1.3% after beating Q4 top and bottom-line estimates and raising Q1 EPS guidance.
The Fed has stressed the need for further interest-rate increases to help tame inflation, but there are differing views about how close they are to stopping. While core goods inflation has fallen to the Fed's target of 1.4% on an annualized basis, core service prices have consistently skyrocketed by half a percentage point each month, and the strength of the jobs market has worried some Fed officials.
0. “Consumer prices rose 6.4% in January” Fox Business, 14 Feb. 2023, https://www.foxbusiness.com/economy/will-cpi-reinforce-powells-disinflation-view
1. “Treasury yields rise after CPI gains 6.4% from a year ago” CNBC, 14 Feb. 2023, https://www.cnbc.com/2023/02/14/us-treasury-yields-investors-await-consumer-inflation-data.html
2. “Inflation's higher tick in January suggests a bumpy road ahead” Axios, 14 Feb. 2023, https://www.axios.com/2023/02/14/cpi-inflation-outlook
3. “US inflation stays high as housing costs bite” BBC, 14 Feb. 2023, https://www.bbc.com/news/business-64639662
4. “US inflation eases again for seventh consecutive month” The Guardian, 14 Feb. 2023, https://www.theguardian.com/business/2023/feb/14/us-inflation-eases-seventh-consecutive-month
5. “Inflation leads off 2023 with a comeback” Washington Examiner, 14 Feb. 2023, https://www.washingtonexaminer.com/opinion/inflation-leads-off-2023-with-a-comeback
6. “Markets Brief: January CPI Report Forecasts Show a Bump in the Road to Lower Inflation” Morningstar, 10 Feb. 2023, https://www.morningstar.com/articles/1136947/markets-brief-january-cpi-report-forecasts-show-a-bump-in-the-road-to-lower-inflation
7. “Stocks Retreat as Elevated U.S. CPI Keeps Hawkish Fed in Play” Barchart, 14 Feb. 2023, https://www.barchart.com/story/news/14192894/stocks-retreat-as-elevated-u-s-cpi-keeps-hawkish-fed-in-play
8. “Fed Officials Float Even Higher Rates After Brisk Inflation Data” Yahoo News, 14 Feb. 2023, https://news.yahoo.com/fed-officials-float-even-higher-171311392.html
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