Warning: There is a January-effect in Wednesday's CPI report
At the same time, I would still argue that it's going to take a lot to convince of any pivot to rate hikes. We're not quite at the stage to be even discussing that in my view. So, that should remove the relative upside bias from a stronger set of inflation numbers today.
And as mentioned, there's still that seasonality factor to consider. Here are some bank views on that:
"There is some risk that inflation will once again firm to start the year due to residual seasonality, but we think that many of the factors that boosted inflation readings during the first quarter of each of the past two years reflected either idiosyncratic factors or pressures that have since abated to some degree." - JP Morgan (forecast of +3.1% core CPI y/y)
"We found an overall upward bias of 5bp to January core CPI, explained by acceleration in both core goods and services. We are adding that bias in our forecast." - Morgan Stanley (forecast of +3.2% core CPI y/y)
"In the myth of residual seasonality, we argue that revisions to 2024 estimates will be minor, with little evidence that the strong January inflation prints in recent years can be attributed to residual seasonality." - Barclays (forecast of +3.1% core CPI y/y)
"We expect some lingering residual seasonality to buoy January’s core reading, but for this dynamic to be less pronounced than last year." - Wells Fargo (forecast of +3.2% core CPI y/y)
This article was written by Justin Low at www.forexlive.com. Read More Details
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