US: Upside risk to medium-term inflation outlook - Nomura

In view of analysts at Nomura, stronger-than-expected January core CPI poses upside risk to medium-term inflation outlook of the US economy.

Key Quotes

“Core CPI inflation was surprisingly strong, rising by 0.3% (0.349%) m-o-m in January (Nomura: +0.188%, Consensus: +0.2%). The 0.349% m-o-m increase marked the highest gain since March 2005. Its 12-month change rate was unchanged at 1.8% while most in the market had expected a slight slowdown to 1.7% (Nomura: +1.682%, Consensus: +1.7%).”

“Headline CPI rose 0.5% (0.539%) m-o-m, up 2.1% (2.071%) y-o-y, also exceeding expectations (Nomura: +0.369%, Consensus: +0.3%). Certain core components, as usual, provided what appeared to be a temporary boost. Further, some technical factors such as methodological changes and potentially imperfect seasonal adjustment may have amplified acceleration in core inflation. However, the strength was very broad-based, suggesting that the underlying inflation trend might have been picking up.”

“Still we expect a gradual upward path for core inflation over the coming quarters, but today’s CPI data pose upside risks to our inflation outlook. Based on CPI data, we now forecast a 0.241% m-o-m increase (1.48% y-o-y) in core PCE inflation for January.”