US: Headline CPI to retreat to 1.5% thanks to lower gasoline prices - TDS

"We expect headline CPI to retreat to 1.5% thanks to lower gasoline prices," said TD Securities previewing this week's inflation report from the U.S.

Key quotes

"Outside of fuels, however, we see strength across food and core services. The latter should underpin a 0.2% m/m print on core CPI, translating to a 2.1% y/y increase vs 2.2% previously. All eyes are on Owners' Equivalent Rent (OER) and rents, which we expect to rebound by 0.3%."

"The main risks to this report are medical care services and hotels (10% of the core index), both of which could correct lower than their December prints. Strength in the former looks unsustainable, while the latter is volatile. Looking ahead, we anticipate headline CPI will likely remain in a narrow 1.4-1.6% range, with a break toward 2% unlikely before Q4 at the earliest."

"Given the focus on geopolitical and other global events, the January inflation data might take a back seat to other drivers. Barring two downside (and one upside) surprises, the data have matched consensus for the bulk of the past 12 releases. For the broader FX market, we don't expect much fireworks for a release that falls in line with market expectations. Instead, the USD comes into the release running rich to risk sentiment (at least against the G9) and positioning remains lopsided in favor of the buck. That means the balance of favors screens lower on the USD, unless we see a notable upside surprise."

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