The US Bureau of Labor Statistics reported on Tuesday that the Consumer Price Index (CPI) declined to 6.4% on a yearly basis in January from 6.5% in December, which was higher than the expected 6.2%. On a monthly basis, the CPI was up 0.5%, matching analysts' estimate. The Core CPI, which excludes volatile food and energy prices, rose 0.4% on a monthly basis as expected, bringing the annual rate down to 5.6% from 5.7%. The US dollar initially came under pressure after the release of the data, but losses remained limited as investors assessed the Federal Reserve's rate outlook. The market expects the data to prompt fresh selling around the US Dollar and allow the EUR/USD pair to initiate a meaningful recovery through the 1.0800 mark. The US CPI data is expected to set the tone for markets in the coming weeks.
The January US Consumer Price Index (CPI) data release has attracted attention from investors and analysts alike. This is because the CPI is considered to be one of the most important macroeconomic indicators for the US, providing insights into inflation and monetary policy. The report, published by the US Bureau of Labor Statistics, has revealed that the annual CPI rate declined to 6.4% in January, from 6.5% in December. This reading was higher than the market expectation of 6.2%.
The report also showed that the monthly CPI rose by 0.5%, which matched analysts' estimates. The Core CPI, which excludes volatile food and energy prices, rose by 0.4% on a monthly basis, as expected. This brought the annual rate down to 5.6% from 5.7%.
One of the key takeaways from the report is the contribution of the shelter index to the monthly increase in all items, accounting for nearly half of the monthly all items increase. The indexes for food, gasoline, and natural gas also contributed. The food index increased by 0.5% over the month, with the food at home index rising by 0.4%. The energy index increased by 2.0% over the month, as all major energy component indexes rose over the month.
The market reaction to the report has been mixed. The US dollar initially came under heavy selling pressure, but its losses remained limited as investors assess how January inflation figures could influence the Federal Reserve's (Fed) rate outlook. At the time of press, the US Dollar Index was down 0.55% on the day at 102.74. Meanwhile, the benchmark 10-year US Treasury bond yield was last seen losing nearly 1% on the day at around 3.67%.
The declining figures for year-over-year inflation measurements, which are expected to continue in January, are likely to impact the US monetary policy outlook. RBC Economics team of analysts expects the CPI growth to have edged down to 6.2% in January from 6.5% in December. They also expect core inflation to slow further in January, coming in at 5.4% year-over-year, down from 5.7% in December. All in all, recent inflation reports have pointed to a relatively broadly-based easing in price pressures.
The CPI data is also expected to set the tone for markets in the coming weeks, in the lead-up to the February employment data and another CPI release before the March Fed policy meeting. Any meaningful divergence from the expected readings should infuse some volatility in the markets and allow traders to grab short-term opportunities around the EUR/USD pair.
In conclusion, the US CPI data release has attracted significant attention from investors and analysts. The declining year-over-year inflation figures are likely to impact the US monetary policy outlook, and any meaningful divergence from the expected readings could result in market volatility.