ab12 February 2024Global Research and Evidence LabUS Economic PerspectivesJanuary CPI Preview Update: Just a smidge weakerCPI revisions bring down our projection a touchFollowing Friday's CPI seasonal adjustment revisions and weight updates we have re-run the components through our models. The results leave our forecast for Tuesday's release of the January CPI a bit lower than before Friday's revisions (8bp lower for the headline CPI change and 1bp lower for the core CPI change). This downward revision is largely a result of the seasonal factors not being revised up in January, as we had expected, but instead January seasonal factors were revised down (though overall revisions were small). The downward revision to our January projection occurs despite the weight on used cars, which we expect to fall sharply in January, being revised down from 2½% of the CPI basket to 2% of the basket. Below is an updated preview.Headline CPI: UBS US Econ 0.08%, UBS Nowcast 0.08%, consensus 0.16%We project Tuesday's CPI release to show the headline CPI rose 8bp (seasonally-adjusted) in January as falling gasoline prices once again will likely hold the headline price increase below the core increase. Twelve-month inflation is projected to drop 45bp to 2.9% — a few basis points lower than any other point in the past few years. Our 8bp headline CPI projection is a little below the current Bloomberg consensus average forecast and in line with the projection from our Nowcasting models. Our projection for the not-seasonally-adjusted level of the January CPI, at 307.831, is about 3½ basis points below CPI swaps fixings from Friday afternoon. Core CPI: UBS US Econ 0.23%, UBS Nowcast 0.19%, consensus 0.28%Our projected 23bp January core CPI increase would see the 12-month change slip to 3.7% following its first appearance below 4% since early 2021 in last month's report. Driven by early year price setting and residual seasonality, we expect a number of components will rise faster in January than in the past couple of months. That broader uptick, however, is obscured by an almost 4% decline in used car prices that is contributing 12bp less to the core CPI monthly change in January than it was in December. Prices for core services excluding rents, which have seen strong increases in the three of the past four months, are projected to rise a little faster in January (53bp) than in December as last month's large 5% decline in leased car prices is not expected to be repeated. A full category roundup of our projection is below in Figure 26Forecasted seasonaly adjusted monthly changes for detailed CPI components and additional details are available in the US inflation forecast spreadsheet on our website. Uncertainty high in next few months, risks to the downsideOver the past two decades roughly half of the year's inflation for both the headline...
