At 21:30 Beijing time on February 14th (Tuesday), the United States will release January CPI data.

US January CPI may be high, even higher than Wall Street expectations

At a time when Federal Reserve officials are becoming increasingly optimistic that inflation is cooling down, there is news that may refute this claim. On Tuesday, all market attention will be focused on the January CPI released by the US Department of Labor. This index is a widely regarded inflation indicator that measures the cost of dozens of goods and services in the entire economy.

With the end of 2022, the US CPI is showing a downward trend. But 2023 seems to indicate that inflation is strong, possibly even stronger than Wall Street's expectations.

Mark Zandi, Chief Economist of Moody's Analytics, said, "We have been pleasantly surprised by the softening of US inflation over the past three months. If January's inflation boom surprised us, it's not surprising

According to Dow Jones data, economists expect the core CPI monthly rate in the United States to increase by 0.4% in January without a quarter adjustment, and the CPI annual rate in January to increase by 6.2% without a quarter adjustment. The core CPI monthly rate in January will increase by 0.3% and the core CPI annual rate will increase by 5.5% without quarter adjustment.

However, there are indications that this number may be higher. The Cleveland Fed's CPI component "Nowcast" tracker shows that it is predicted that the monthly core CPI rate in the United States in January will increase by 0.65% without quarter adjustment, the annual CPI rate in January will increase by 6.5% without quarter adjustment, and the monthly core CPI rate in January will increase by 0.46% without quarter adjustment and 5.6% without quarter adjustment, respectively.

If inflation is too high in January, it may stimulate the Federal Reserve to continue raising interest rates

If the data exceeds expectations, there will be potential significant investment impacts.

Federal Reserve policymakers are paying attention to CPI and a series of other data to see if a series of eight rate hikes can have the expected effect to cool inflation, which hit a 41 year high last summer. If monetary tightening proves ineffective, it may force the Federal Reserve to adopt a more proactive attitude.

However, Zandi said that relying too much on individual reports is dangerous. He said, "We should not pay too much attention to any monthly changes. Generally speaking, through monthly fluctuations, we should see year-on-year growth continue to decline." In fact, the CPI reached a peak of around 9% in June 2022, but has been declining since then, dropping to 6.4% in December.

But food prices have remained stubbornly high, rising by over 10% compared to December last year. Gasoline prices have also experienced a reversal, with gasoline prices rising by about 30 cents per gallon in January, according to data from the American Automobile Association. According to the revised data released last Friday, even the initially announced 0.1% decline in overall CPI for December has been revised up, and now it shows an increase of 0.1%.

Chief Investment Officer Peter Bookvar said, "Can this situation continue when you have a series of lower than expected data? I don't know

Bookvar stated that he does not expect the January report to have a significant impact on the Federal Reserve in any case. He said, "Let's assume the overall number is 6%, will this really have an impact on the Federal Reserve? The Federal Reserve seems to be interested in raising interest rates by another 50 basis points, and they clearly need more evidence to change it. A single number cannot do this

The market currently expects the Federal Reserve to raise interest rates twice from its current target range of 4.5% -4.75%, which will mean an additional half percentage point increase, or 50 basis points. Market pricing also indicates that the Federal Reserve will stop at the "terminal interest rate" of 5.18%.