Will US CPI Inflation Rate Enter the 2% Range for the First Time... Announcement Tonight

Significant Slowdown Expected After 2 Years and 10 Months
Fed Cautious About Early Interest Rate Cut Expectations

The US Consumer Price Index (CPI) inflation rate, which once surged to around 9%, is expected to enter the 2% range for the first time in about 2 years and 10 months. However, Federal Reserve (Fed) officials have repeatedly expressed caution, saying it is too early to declare victory in the fight against inflation, wary that premature market expectations for rate cuts could strengthen.

[Image source= Xinhua News Agency]

According to the Department of Labor, the US January CPI will be released at 8:30 a.m. Eastern Time on the 13th (local time), which is 10:30 p.m. Korean time that night. Currently, Wall Street estimates that the year-on-year CPI inflation rate, which rebounded to 3.4% in December last year, will significantly slow to 2.9%. In this case, the monthly CPI will fall below 3% for the first time since March 2021. The January CPI is also expected to have slowed to 0.3% month-on-month.

Meanwhile, the core CPI, which excludes the volatile energy and food sectors, is expected to continue its disinflation trend with a 3.7% year-on-year increase. Month-on-month, it is projected to rise by 0.3%, maintaining a similar level for the third consecutive month.

RBC analyzed, "The headline CPI inflation rate will fall below 3% for the first time in nearly three years," adding, "Much of this inflation slowdown is due to falling energy prices." However, high housing rents remain a concern. Housing costs account for 35% of the CPI weighting and were a factor in the CPI rebound in December last year. Accordingly, investors are expected to closely watch housing costs and service inflation details in the January CPI breakdown.

RBC noted, "The uneven part of CPI inflation is still due to high housing costs," and predicted that the upward trend in housing costs may slow down in the future. Bank of America (BoA) also pointed out in an investment note that used car prices and housing costs have been stubbornly resistant to decline. Soci?t? G?n?rale forecasted, "The headline CPI inflation rate will ease to 2.9%," but added, "The Fed will want more evidence that inflation is on a sustained path back to the 2% price stability target."

One day before the CPI release, the US consumers' 3-year inflation expectations also fell to the lowest level since 2013, reinforcing disinflation signals. This provides Fed officials with greater confidence that the US economy is moving toward the price stability target. According to the New York Federal Reserve Bank's consumer outlook survey, the 3-year inflation expectation dropped from 2.6% last month to 2.4%. The 1-year and 5-year inflation expectations remained unchanged at 3% and 2.5%, respectively.

Bloomberg News commented, "It is already known that the Fed will cut rates this year, but the uncertainty lies in the size and timing of the cuts," adding, "If the CPI meets expectations, it will strengthen the current consensus that the Fed will start cutting rates from summer." The Personal Consumption Expenditures (PCE) price index, another inflation gauge closely watched by the Fed, is also continuing its disinflation trend. This indicator is scheduled to be released at the end of this month.

However, Fed officials have also voiced concerns that the last mile to achieving the inflation target could be difficult or that inflation might rebound. Thomas Barkin, President of the Richmond Fed, said at an event that "there is a real risk that inflationary pressures will persist," and cautioned that "it is too bold to declare victory at this point." Michelle Bowman, a Fed Governor, also assessed that a rate cut in the near term would not be appropriate. Both have voting rights at this year’s Federal Open Market Committee (FOMC) meetings.

Meanwhile, this week will also see the release of the Producer Price Index (PPI), a wholesale price indicator, and retail sales data. Previously, US December retail sales showed a solid level that exceeded Wall Street expectations. Retail sales are considered a pillar supporting two-thirds of the US real economy and a comprehensive gauge of economic health.

This content was produced with the assistance of AI translation services.