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United States Inflation January 2024

United States: Inflation exceeds market expectations in January

Inflation came in at 3.1% in January, which was down from December’s 3.4%. January’s figure represented the weakest inflation rate since June 2023, but was above market expectations of 2.9% and still notably higher than the Fed’s 2.0% target. Looking at the details of the release, housing, food and transport prices rose at more moderate paces in January.

Accordingly, the trend pointed down, with annual average inflation coming in at 3.8% in January (December: 4.1%). Meanwhile, core inflation was steady, coming in at December’s 3.9% in January and also higher than market expectations.

Lastly, consumer prices rose 0.31% from the previous month in January, accelerating from the 0.23% increase seen in December. January’s result marked the highest reading since September 2023.

Inflation should trend down later this year but is seen above the Fed’s target throughout 2024 on resilient economic activity.

On the monetary policy implications, Nomura analysts said:

“Strong January inflation data will likely keep the Fed on hold until at least June. We now forecast three 25bp rate cuts this year, at the June, September, and December meetings. We had previously expected 100bp of easing this year, with the first cut in May. […] Strength in many services components is likely transitory, but the breadth of the acceleration is alarming and some components may presage more persistent upward pressure. […].”

In contrast, Goldman Sachs analysts were somewhat more dovish:

“The January CPI report was broadly similar to our expectations. […] we continue to expect inflation in non-housing services to normalize in February and March now that the start-of-year price increases have been implemented. We continue to expect the FOMC to leave the Fed funds rate unchanged at the March meeting and to begin the easing cycle in May.”

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