ab21 February 2024Global Research and Evidence LabUS Economic PerspectivesUS Inflation Monthly: Was the January CPI signal or noise?January inflation has been strong, but it does not change the downward trendLast week's CPI and PPI data were quite elevated, but January core CPI and PCE increases appear to be lower than 12 months ago. As a result 12-month inflation continues to decline and we expect further slowing ahead, even if that pace of that slowing now appears more gradual.The big surprise in January was in services — particularly core non-rent services. Core non-rent services generally do not surge in January (even on a not-seasonally-adjusted basis) making the January CPI pickup quite different from a usual seasonal acceleration. It also makes the path of inflation over the next couple months more uncertain. Owners' equivalent rent (OER) also surprisingly accelerated in January. Looking at new lease rents, the unusually large gap between OER and tenants' rent in January, and 12-month change for OER panels all suggest a notable slowing in OER over the next few months.Strong February monthly likely, but gradually slowing inflation continuesWe project core PCE prices to rise 42bp in the January data released at the end of next week. The strong January increase keeps 12-month core PCE inflation at 2.9% (while inflation in December gets revised up from 2.9% to 3.0%). The 6-month annualized change in core PCE prices is projected to move up to 2.55%. We currently project the headline CPI to rise 46bp in February (seasonally adjusted; 66bp not seasonally adjusted) with core CPI prices again rising 39bp. Rising gasoline prices and a smaller used car price decline that offsets a slowdown in services are the main drivers for the strength in February. We will update these projections as additional data becomes available.A detailed forecast spreadsheet is available on our website.Core PCE inflation forecast higher, but still below consensus at 1.9% for 2024We continue to expect that moderating demand, easing supply conditions, slowing rents, and a softening labor market will push down inflation over much of the next year. However, with the strength of the January price data we have raised our forecast. We project 12-month core PCE inflation to edge down to 2.8% in February and 2.7% in March and continue to fall roughly 10bp per month through June as large base effects from early last year fall out of the 12-month change.Our PCE inflation forecast for this year remains below consensus, with our core PCE inflation projection 0.2pp to 0.5pp below other consensus measures. In contrast, our CPI and core CPI inflation projections are a touch above consensus (and swaps) as we expect the wedge between CPI and PCE inflation to remain elevated this year. This report has been prepared by UBS Brasil CCTVM S.A.. ANALYS...
