Too-High CPI (Capital Market Research) (Weekly Market Outlook

According to January's consumer price index, the annual inflation rate fell from 3.4% to 3.1%. The February 13 report, however, was not a particularly good one. The 0.3% increase in the headline CPI from December to January was faster than Moody’s Analytics call for a 0.1% gain. Core CPI, which excludes food and energy prices and provides a better sense of inflation’s underlying trend, also came in hotter than expected. The core CPI rose 0.4% and was up 3.9% relative to a year ago. Behind the upside surprise is the persistence of housing inflation. In addition to the February 13 report on January’s CPI, February’s CPI data will be released before the rate-setting Federal Open Market Committee meets in March. Moody’s Analytics always assumed March too early for the FOMC’s first rate cut and January’s CPI solidifies that.