- US inflation has picked up in January 2023 on a monthly basis.
- The yearly trend remains to the downside.
- Investors are set to ignore the housing sector, where price rises are outdated.
- Core services inflation supports further rate hikes.
Is that it? Some investors surely have these thoughts, as they brush aside minor beats on yearly inflation figures – while they see the trend as remaining to the downside. That implies a risk-on mood in markets.
The most important figure is the Core Consumer Price Index (Core CPI), which rose by 0.4% MoM in January, exactly as expected. While this is a tick-up from 0.3% in December, it remains below the high 0.6% levels seen in mid-2022. Yearly underlying inflation is up 5.6%, higher than expected but below the figure recorded in December.
The same yearly picture is seen for headline CPI, which slowed from 6.5% to 6.4% but came out above the 6.2% projected. Inflation is hotter than expected but trending down. That is good news for the US economy – and for stocks.
I also want to emphasize that the housing sector still contributes to higher inflation despite falling rent prices. This is due to a quirk in calculations, well known to economists at the Federal Reserve (Fed). The cooling housing sector will take a few more months to reach the data.
Inflation is falling despite the rent factor – and has more room to fall without it.
Perhaps the strongest argument to expect optimism in markets stems from the "super core" inflation – a calculation of the "non-shelter core services" factors. These exclude energy, food, rental, and other volatile factors, going beyond the basic core exclusions of food and fuel. This super-core is up only 0.27% in January, down from roughly 0.40% in December.
Inflation is falling – and everybody is noticing it.
The Fed is still set to raise rates in March, and the labor market is on fire. Nevertheless, even if employment is steaming hot, inflation is cooling. That is good news for the US economy, the world and stock markets. For the US Dollar, it means ongoing pressure.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD continues to push higher toward 1.0800 on broad USD weakness
EUR/USD preserves its bullish momentum and continues to push higher toward 1.0800 on Tuesday. The positive shift witnessed in risk sentiment doesn't allow the US Dollar to find demand and helps the pair push higher. Existing Home Sales will be featured in the US economic docket.
GBP/USD recovers from session lows, trades above 1.2250
GBP/USD has gained traction and recovered above 1.2250 on renewed US Dollar weakness on Tuesday. Ahead of the Fed's and the BOE's policy announcements, however, the pair seems to be having a difficult time gathering bullish momentum.
Gold drops below $1,970 as US yields push higher
Gold price extended its daily slide and declined below $1,970. The benchmark 10-year US Treasury bond yield is up nearly 2% on the day above 3.5% on improving risk mood, forcing XAU/USD to stay under bearish pressure ahead of Fed's policy decisions on Wednesday.
If Fed’s money printer goes brrr… will Bitcoin price hit $1 million?
Bitcoin has taken front and center stage after it restarted its 2023 rally in March. This resurgence of buying pressure pushed BTC to nine-month highs.
FX thoughts for the week
Do central banks face a conflict between their inflation mandate and financial stability? The markets are still grappling with this question and confidence in the financial sector has not fully recovered. For now, central banks are responding with a conditional no.