Is the US January CPI Report a Clearer Indicator of Inflation?
This week is packed with crucial US economic data releases, and the consumer price inflation (CPI) report is the highlight tomorrow. It's a rare opportunity to get a comprehensive view of US economic trends in a single week.
So, what can we expect from the upcoming US CPI report on Friday?
Following the government shutdown in the fall, we anticipate further reduction in distortions related to that event in the January report. It's important to note that the brief shutdown in early February won't impact data collection, so it won't be a factor this time.
For most of 2025, markets have been closely monitoring the impact of tariffs on prices. While there is evidence of tariffs affecting data, their overall impact on price pressures has been less significant than initially anticipated.
However, we expect tariffs to play a more prominent role this time. As long as tariffs continue to influence core goods prices, it will be challenging for the Fed to ignore this trend.
The focus will remain on core prices when analyzing the report. If the annual estimate stays within the 2% to 3% range, it will be difficult for the Fed to adopt a significantly more dovish stance than their current position.
Wells Fargo offers insights:
'Although last January's price surge will likely influence the updated factors, we're concerned about ongoing seasonal distortions in the data due to the pandemic. We predict a 0.33% month-over-month increase in core CPI in January, 10 bps stronger than the average pace in 2025. Delayed tariff cost pass-through is expected to support firmer core goods prices, while services inflation may see a moderate boost.'
They also note:
'While both headline and core CPI are projected to decrease year-over-year in January, we don't anticipate significant cooling in 2026 due to supportive fiscal and monetary policies.'
RBC provides a different perspective:
'Headline US price growth likely slowed in January, primarily due to a 3% seasonally adjusted decrease in gasoline prices from December. However, core price growth is expected to remain stable at 2.6%, extending readings above the Fed's 2% inflation target for almost five years.
Tariff pass-through to consumer prices has been limited, but business surveys indicate further increases in the pipeline. Core producer price inflation continues to outpace consumer price growth (3.5% in December).
Food inflation is projected to remain close to 3%. Year-over-year shelter inflation is still above 3%, despite being lowered in November and December due to a methodological quirk caused by the US government shutdown in October, which is expected to reverse by April.'
Lastly, Goldman Sachs provides their estimates:
'We forecast a 0.33% increase in January core CPI (vs. +0.3% consensus), corresponding to a year-over-year rate of 2.52% (vs. +2.5% consensus). We expect a 0.24% increase in headline CPI (vs. +0.3% consensus), reflecting higher food (+0.45%) and lower energy (-1.3%) prices. Our forecast aligns with a 0.31% increase in core PCE in January.'
