Consumer Price Index:Historical Releases/2023 January

Return to: Consumer Price Index | Historical Releases

Full Report: https://www.bls.gov/news.release/archives/cpi_02142023.pdf

Publishing date: February 14 2023

Summary

https://www.bls.gov/news.release/archives/cpi_02142023.pdf

January 2023 CPI numbers came above expectations 6.4% vs 6.2% , markets remained mostly flat after the release. The probability of a 25bps rate hike in march remained at 90%, but now the terminal rate is up to 5.5%, and first rate cut in November/December.

CPI rose 0.5 percent in January on a seasonally adjusted basis, after increasing 0.1 percent in December. Over the last 12 months, the all items index increased 6.4 percent before seasonal adjustment.

The index for all items less food and energy rose 0.4 percent in January. Core CPI was 5.6% Y/Y.

Biggest Contributors:

Weighing of CPI components

The index for shelter was by far the largest contributor to the monthly all items increase, accounting for nearly half of the monthly all items increase, with the indexes for food, gasoline, and natural gas also contributing.

https://twitter.com/LizYoungStrat/status/1625501151537012737/photo/1

In core CPI, categories which increased in January include the shelter, motor vehicle insurance, recreation, apparel, and household furnishings and operations indexes. The indexes for used cars and trucks, medical care, and airline fares were among those that decreased over the month.

Categories watched by the FED:

The breakdown into the 3 categories shows that Services inflation has decreased a bit but still remains high and sticky. Looking at the 3 month annualized data (picture at the right) is notorious most of the contribution is now coming from shelter which is expected to decline after second half of 2023.

• Core goods: 1.4% YoY
• Core Services: 7.2%

• Shelter: 7.9% YoY

• Services less shelter "super-core": 6.22% YoY

Assessment

As expected the January CPI 2023 was driven mostly by:

• Shelter inflation due to the lags
• Energy prices increasing in January
• Core goods even though declining Y/Y, saw an increase to 0.1% m/m, after being negative for the past 4 months.

This could be the first signal that the large negative contributions that energy and goods had on inflation in past months are likely to stabilize or even become positive in the coming months. If this is the case, continue large declines in CPI will rely on services inflation, which in turn mostly depends in the labor data.

January report is our opinion don't change the trajectory the FED is most likely take from now on.

CPI expectations

January 2023 inflation forecasts are expecting a continuing decline in inflation to 6.2% Y/Y, this is mostly in line with the short-term drivers' trends. However, there are 2 points to remain cautious for February 14 release:

• There will be a change in methodology, which could create a big miss tomorrow if forecasts did not correctly account it: "Starting with January 2023 data, the BLS plans to update weights annually for the Consumer Price Index based on a single calendar year of data, using consumer expenditure data from 2021. This reflects a change from prior practice of updating weights biennially using two years of expenditure data."
• January 2023 saw a small acceleration in used car prices, energy/gasoline, and stabilization in housing, this could offset some of the disinflationary trends in goods and the small decline in wages.

Before CPI, market is pricing a 90% probability of a 0.25 bps rate hike in the March meeting. A terminal rate of 5.2%, and rate cuts starting after October.

Range:

• CPI: 6.0% - 6.5%
• Core CPI: 5.4% - 5.7%

If <6.0%: ≥ 5% rally

Between 6.0% - 6.1%: 2-3% rally

In line with expectations (6.2% - 6.3%): flat reaction

Between 6.4% - 6.5%: 2 -3% drop

if >6.5%: ≥ 5% drop

Consensus forecast

Variable	Forecast	Previous	Actual	Market Reaction
Core CPI (MoM) (Jan)	0.40%	0.40%	0.4%	0.14%
Core CPI (YoY) (Jan)	5.50%	5.70%	5.6%
CPI (YoY) (Jan)	6.20%	6.50%	6.4%
CPI (MoM) (Jan)	0.50%	0.10%	0.5%

FED Cleveland Forecast

	YoY Change		MoM Change
Month	CPI	Core CPI	CPI	Core CPI
Jan-23	6.48	5.59	0.65	0.46
Feb-23	6.35	5.55	0.61	0.46

JPM Forecast

January CPI	Probability	S&P Reaction
Above 5%	5%	Down 2.5% to 3%
6.4% to 6.5%	25%	Down 0.75% to 1.5%
6.0% to 6.3%	65%	Up 1.5% to 2%
Below 6%	5%	Up 2.5% to 3%

Specific institutions forecast

Institution	Forecast
AMERIPRISE	5.80%
BANK OF AMERICA	6.10%
SCOTIABANK	6.10%
BARCLAYS	6.20%
CREDIT SUISSE	6.20%
JP MORGAN	6.20%
GURGAVIN CAPITAL	6.20%
TD SECURITIES	6.20%
WELLS FARGO	6.20%
VISA	6.30%
BMO	6.40%
GOLDMAN SACHS	6.40%
MORGAN STANLEY	6.40%
SMBC NIKKO	6.70%
MEDIAN	6.20%

Commentary

1. Inflation has a higher likelihood chance of remaining sticky, and the Fed could end up hurting the economy as it struggles to rein in soaring prices, according to economist Mohamed El-Erian.

• He estimated that there was only a 25% chance of inflation steadily declining from here
• 25% chance that prices would bounce back sharply, causing a "U inflation" scare.
• Most likely scenario was inflation remaining sticky at 3%-4%, with a 50% probability.

2. Jamie Dimon also believes there is a risk inflation could remain sticky at 3-4% (min 1:20)

• He thinks is reasonable to expect the FED to pause at 5%, wait for the lags to take effect, and then hike again if inflation remains sticky.