US CPI, Not the Perfect Valentine

It’s Valentine’s Day, and with the 14th of February marking the first CPI data release for 2023, many market participants will be hoping for a continued downtrend in annual inflation to pave the path for the FED to ease rate hikes come future rate announcements.

Despite the annual US Consumer Price Index (CPI) reaching a forty-year high of 9.1% in June 2022, market participants would have been relieved to see a steady decline in annual US inflation during the second half of 2022. The Federal Reserve (FED) adopted a highly aggressive and hawkish stance, raising its benchmark interest rate by 75 basis points in four consecutive meetings throughout the year.

With “all eyes laser-focused on the latest CPI report”, the annual US CPI figure comes in slightly above expectations at 6.4% for January, marginally down from December’s annual figure of 6.5%. On a seasonally adjusted basis, the US Consumer Price Index (CPI-U) for All Urban Consumers increased by 0.5% in January. Food prices continue to surge, with food inflation coming in at 10.1% year-over-year, but the index for shelter was the most significant contributor to the monthly all-items index. Moreover, Russia’s ongoing invasion of Ukraine has kept energy prices stubbornly high, with energy inflation rising 8.7% year-over-year.

Market participants will be relieved to see January’s CPI figure come in slightly lower than the prior month’s annual figure. Still, the decrease was not as significant as many would have been hoping for. All eyes will turn to the FED’s following interest rate announcement to gauge whether a soft landing is still in the works as market participants navigate a turbulent macroeconomic environment.

Sources: US Bureau of Labor Statistics, CNBC

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