According to economists’ estimates, inflation may have remained stubborn last month, supporting the Federal Reserve’s patient approach to lowering borrowing costs. This implies that the number and extent of interest rate cuts by the Federal Reserve in 2025 could be further constrained.
The U.S. Bureau of Labor Statistics will release its report at 21:30 Beijing time on Wednesday (February 12th). It is expected that the core consumer price index excluding food and energy will rise by 0.3% in January compared to December. The median forecast from a Bloomberg survey indicates that the core CPI may increase by 3.1% compared to the same period last year.
January will mark the fifth month in the past six that the core CPI has risen by 0.3%, which is consistent with the stagnation of progress in reducing inflation. Federal Reserve Chair Jerome Powell reiterated on Tuesday that the central bank does not need to rush to adjust interest rates.
BOA economists Stephen Juneau and Jeseo Park wrote in a report: “Inflation remains above target, risks are skewed to the upside, economic activity is strong, and the labor market seems to have stabilized near full employment.” If the core CPI rises by 0.3% on a monthly basis, then “the case for the Fed to keep interest rates unchanged will be further strengthened.”
Many companies and service providers tend to raise prices and fees at the beginning of the year, and this has been especially true in recent years as consumers seem willing to bear the extra costs. As a result, inflation in the first quarter has risen faster than at other times this year following the pandemic recovery.
Despite this, Sarah House and Aubrey Woessner, economists at Wells Fargo, said: “The relatively calm price environment over the past year should reduce the need for businesses to raise prices significantly.”
They wrote last week: “We expect that some lingering issues around seasonal residuals will support the core data in January, but we think this dynamic will be less pronounced than last year.”
The report on Wednesday will include an annual update of the seasonal adjustment factors for all months over the past five years, which typically leads to revisions in the data. The report will also incorporate new consumption basket weights to more accurately reflect the spending habits of Americans.
Some analysts believe that these adjustments could lead to an unexpected price drop this year – mainly because some of the normal price increases at the beginning of the year can be attributed to seasonal changes.
The deadly wildfires that raged through Los Angeles last month may have an impact on the prices of some goods and rents.
Morgan Stanley economists said in a report on February 6th: “Wildfires destroyed vehicles, so the demand for new and used cars increased after the disaster, pushing up prices.”
Meanwhile, Stuart Paul of Bloomberg Economics estimates that the average rent for one-bedroom apartments in the 10 blocks near the fire rose by 1.9% from the start of the fire on January 7th to the end of the month.
Paul wrote on Tuesday: “We believe that the impact of wildfires on the Los Angeles rental market will continue in the coming years and will affect regional inflation indicators. But despite Los Angeles being part of the second-largest metropolitan area in the United States, the shock to the local rental market is likely to have a very small impact on national inflation indicators.”
Looking ahead, President Donald Trump’s rapidly advancing trade and economic policy agenda makes it challenging to predict the inflation trend.
Juno and Parker of Bank of America said, “We still believe that the Trump administration’s trade, fiscal and immigration policy agenda will bring about mild inflation.” Although the impact is more likely to be felt in the second half of the year, “imposing additional tariffs in the coming weeks could bring forward this timeline.”
