US CPI Data: What to expect from the inflation release today?

Ahead of the release of US CPI inflation data, which is anticipated to provide some insight into the direction of the Fed fund rate, international markets remain cautious. Expectations for Fed policy rate cuts have been reduced, and discussions are underway to delay the rate drop beyond March 2024. Overall, the Federal Reserve appears more relaxed about inflation, reducing upside risks and predicting a lower Fed funds rate path in 2024 than previously thought.

December 2023 CPI data are scheduled to be released on January 11, 2024, at 8:30 A.M. Eastern Time by the Bureau of Labor Statistics. US consumer price inflation is expected to rise by 3.2% in December, according to several economists. However, many others expect the core PCE deflator is expected to show a soft print this month, with the CPI report expected to break below 4% for the first time since May 2021, indicating inflation sustainability reaching the 2% target by mid-2024.

The consumer price index, a closely watched inflation index, increased 0.1% in November and was up 3.1% from a year ago with core inflation at 4%.

José Torres, Senior Economist at Interactive Brokers says – This week’s strong labor data is favoring wounded market bears and monetary policy hawks. First, it was job openings, then unemployment claims, ADP employment, and then the payrolls data, which all depict conditions that threaten the Fed’s 2% inflation objective.

The bears are looking to go on a run, after equity bulls launched a nine-week winning streak, finishing a strong 2023. The first week of January provides an important preview for the rest of the year and so far, the tone is reflecting more turbulence than last year’s smoother sailing. CPI is likely to reflect inflationary pressures that are troughing at 3%.

Rania Gule Market Analyst at XS.com says – On Friday, a significant number of high-profile banks and financial institutions, including BlackRock (BRK), Wells Fargo (WFC), Bank of America (BAC), JPMorgan (JPM), and UnitedHealth Group (UNH), will announce their financial results for the quarter ending in December. This is expected to have a definite impact on the short-term and medium-term movement of stock market indices.

Currently, the stock market appears to be undergoing a corrective pullback from the highs of December, entering a consolidation phase after the substantial increase starting in November from the $4,100 level. However, the upward trend seems to remain active in the medium term, as investor sentiment remains optimistic.

The likely scenario is to stay within the 4,700 to 4,800 range despite the dip below 4,700 last week. Therefore, it is advisable to shorten the trading time frame, looking for buying opportunities at support levels and bottoms and selling at resistance levels and peaks.

Amit Goel, Co-Founder & Chief Global Strategist, Pace 360 says – The cooling trend in the US headline inflation is set to reverse in the December data, due on Jan. 11. We expect the headline CPI to increase 0.2% MoM in December (vs. 0.1% prior), boosting the annual pace to 3.2% (vs. 3.1% prior). The monthly pace of core inflation is expected to hold steady at 0.3%, with the year-over-year change falling to 3.8% (vs. 4% prior).

We believe that the probability of undershooting the inflation expectations is more than the probability of overshooting. Gasoline prices rose modestly on a seasonally adjusted basis in December, halting the primary source of headline disinflation since September.

We expect deflation in core-goods prices to continue weighing on the headline and core inflation figures but at a lower rate than last few months. If firms are successful in destocking inventory, that source of disinflation will abate even faster in the months ahead. We expect the headline and core inflation in US to start falling more sharply post March. We expect both the measures to fall below 2% by the second half of CY 2024.

Vaibhav Shah, Fund Manager, Torus ORO PMS says – US CPI data will be the most important data point in the start of 2024 to re-evaluate the rate expectations from US Fed.

December 2023 reignited animal spirits when US Fed signalled peak rate cycle and the dot plot suggesting rate cuts in 2023.

However, the markets priced in optimism with an expectation of more rate cuts and what was indicated by US Fed.

US CPI that will be released today, will help the market participants to evaluate the pace and timing of rate cuts.

We think that the headline inflation may show a similar trend as seen last month however core inflation may surprise on the positive side.

As Fed pivot remains one of the most important theme for 2024, inflation data would be a key data point to realign market expectation

Sources: Financial Express

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