| ON DECK FOR WEDNESDAY, FEBRUARY 12 |
KEY POINTS:
- Markets await a US CPI report that frankly doesn’t matter
- Trump’s trade policy is getting more unglued by the minute
- US CPI expectations
- Powell round two
- BoC to deliver the not-minutes Summary of Deliberations
Ready, set, snooze! The only calendar-based risk to consider will be the US CPI number and it matters not one iota to the Fed. Off-calendar risk could easily matter much more these days.
For that matter, Trump’s unglued trade policy that’s threatening 50–100% tariffs on Canadian autos and combining 25% steel and aluminum tariffs with 25% across the board tariffs for a cumulative 50% rate on the metals from Canada and Mexico matters way more. Trump and his combative Commerce Secretary Lutnick (here) should listen to the various industry voices in the US including Ford’s CEO (here). This is policy made up on the fly by a chaotically mismanaged White House more interested in the trade than the impact of its actions upon millions of lives.
I’m also more concerned about where the heck to put well over another 40–50cms of snow on the way through the weekend than I am about CPI. That’s 15–20” for the few in the world still on the Imperial system, an exclusive list including only the US, Liberia and Myanmar! Tariff them for the added compliance costs of having to convert!
Why US CPI Just Doesn’t Matter
Why doesn’t this CPI report matter? One reason is because the FOMC is very clearly on hold for the March 19th FOMC and so nothing immediately hangs on this report.
Another reason is that there will be three CPI and three PCE reports before the next meeting on May 7th. One report will decide absolutely nothing, and if we do get tariffs, then the FOMC won’t be spending a whole lot of time looking back on inflation that was. For one month. Plus, there will be a whack of job market readings and dozens of erratic policy signals from the US administration. Among those signals – other than tariffs – are whether Congress can deliver on Trump’s fiscal wish list in the first 100 days as per his demand, and which lands just before the May FOMC. That’s the bigger picture in my opinion, whereas this CPI report just doesn’t cut it.
And of course, the FOMC focuses upon the PCE inflation reading for which we need CPI and tomorrow’s PPI to firm up expectations for the next update.
CPI Expectations
Chart 1 shows the recent pattern for m/m core CPI. The last print for December was 2.7% m/m SAAR and the 3-month moving average for core CPI is running at a hot 3.3% m/m SAAR.
Consensus expects 0.3% m/m SA for both headline and core CPI in January. The Cleveland Fed’s nowcasts are 0.2% for headline and 0.3% for core. I also went with 0.2% m/m SA for headline and 0.3% for core in Scotia’s estimates that were submitted last week.
Gas prices were up a touch but by a little less than is seasonally normal and so there is a small m/m drag from SA gasoline prices on headline CPI.
Vehicle prices were materially lower last month in both seasonally unadjusted and adjusted terms according to industry guidance. How that translates into the CPI methodology is uncertain, but it could hold back core.
I’ve gone with sticky shelter prices up 0.3% m/m that are off the peak influences but still showing some persistence (chart 2).
January’s seasonal adjustment factors tend to be on the lighter side in recent years (chart 3) but NSA price gains to start each year tend to be stronger than usual in recent years (chart 4). Starting since before the pandemic back in 2018, company pricing models pivoted toward jumping out of the gates with larger price increases to kick off the new year. The seven biggest January m/m NSA price gains have all been the seven years since 2018.
That said, this is the report that introduces annual revisions to estimated seasonal adjustment factors stretching back over the past five years and so there is lower confidence in the SA factors that will be applied to the NSA changes.
Core service prices (ex-energy and housing) have also become tamer over time, but still exhibiting considerable stickiness (chart 5).
There is more on US CPI etc in my Global Week Ahead here.
Powell Round Two
Federal Reserve Chair Powell delivers round two of his semi-annual testimony this time before the House Financial Services Committee (10amET). He may react to CPI, but flag that a lot more data is needed to inform the length of the pause.
BoC’s Summary of Deliberations
I’m not expecting much out of the BoC’s Summary of Deliberations (1:30pmET) in the wake of various communications from the Bank of Canada.
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