Why Thursday's U.S. CPI report might kill stock market's hope of inflation melting away

[mahatmakanejeeves]

Linked from Yahoo! Finance

Market Extra

Why Thursday’s U.S. CPI report might kill stock market’s hope of inflation melting away

Last Updated: Jan. 11, 2023 at 1:01 p.m. ET
First Published: Jan. 11, 2023 at 9:57 a.m. ET
By Isabel Wang

A mild stock market rally to kick off the new year will be put to the test Thursday when investors face a highly-awaited U.S. inflation reading which could well help determine the size of the Federal Reserve’s next interest-rate increase.

The December CPI reading from the Bureau of Labor Statistics, which tracks changes in the prices paid by consumers for goods and services, is expected to show a 6.5% rise from a year earlier, slowing from a 7.1% year-over-year rise seen in the previous month, according to a survey of economists by Dow Jones. The core price measure that strips out volatile food and fuel costs, is expected to rise 0.3% from November, or 5.7% year over year.

The December CPI will be particularly important for influencing the Fed’s decision in its upcoming meeting which concludes February 1, said economists at Pimco. They expect the inflation and labor market data will have moderated sufficiently will push the central bank to pause rate hikes before their May meeting. ... “After hiking 50 basis points at the December meeting, we expect the Fed moves to a 25bp hiking pace in early February, and ultimately pause around 5%,” wrote Pimco’s economists Tiffany Wilding and Allison Boxer, in a Tuesday note.

However, since the Fed’s December meeting, officials have relentlessly signaled the central bank will need to raise interest rates above 5% in order to get inflation to the 2% target, with no interest rate cuts expected this year. Fed funds futures traders now see a 78% likelihood of a 25 basis point hike at its February meeting, and a 68% chance of another in March, which would bring the terminal rate to merely 4.75-5% by mid-year, according to the CME FedWatch tool.

{snip}

[mahatmakanejeeves]

2. Stock market news live updates: Stocks rise with all eyes on CPI report

Yahoo Finance

Stock market news live updates: Stocks rise with all eyes on CPI report

Alexandra Semenova · Reporter
Wed, January 11, 2023 at 4:08 PM EST · 3 min read

U.S. stocks ascended Wednesday as Wall Street counted down to the release of key consumer price data that is projected to show inflation further easing.

{snip}

The drumroll is growing louder for December's Consumer Price Index (CPI) Thursday morning. Economists expect headline CPI rose 6.5% over the prior year last month, Bloomberg consensus estimates show. If realized, the reading would mark another glide lower from the 7.1% increase seen in November.

The report is likely to sway bets on whether the Federal Reserve will raise interest rates by 0.25% or 0.50% at the conclusion of its next meeting Feb. 1, while offering hints on how much higher rates are likely to go in subsequent meetings. ... The latest economic forecasts from the Fed's December gathering showed officials project their key overnight lending rate rising to 5.1% in 2023.

Several Federal Reserve officials, including San Francisco Fed President Mary Daly and Atlanta Federal Reserve President Raphael Bostic, have asserted this week that rates will likely go somewhere above 5%. And JPMorgan (JPM) CEO Jamie Dimon predicted in an interview with Fox Business Network aired Tuesday that rates could reach 6%.

{snip}

[progree]

3. Latest inflation (CPI, PPI, PCE) regular and core, as of Jan 11

From the inflation megapost, https://www.democraticunderground.com/10143007428#post2

Last 5 months, ANNUALIZED:
CPI: 2.47%, CORE CPI: 4.72%
PPI: 1.05%, CORE PPI: 1.51%
PCE: 2.42%, CORE PCE: 3.71%

For CPI and PCE, CORE means all items less food and energy
For PPI (producer price index), there seems to be two different definitions of Core. I chose the "less food and energy" one for consistency. The other, that the BLS highlights, is less food, energy, and trade services


Jeremy Siegel from December 13
If Fed stopped looking at stale housing data they'd realize inflation is over.
for link and some details, click on the link at the top of this post.

[bucolic_frolic]

4. I continue to think interest rates will need to double from here to tame inflation

So far it's just a temporary pause.

[mahatmakanejeeves]

5. Stocks: All eyes on U.S. inflation report

Bloomberg

Stocks Climb, US Futures Becalmed Before CPI Data: Markets Wrap

John Viljoen
Thu, January 12, 2023 at 7:17 AM EST · 3 min read

{snip}

Every aspect of Thursday’s CPI report will be scrutinized, with extra attention on core inflation, which excludes food and energy and is seen as a better indicator than the headline measure. The projected 5.7% increase would be well above the Fed’s goal, helping explain its intention of keeping rates higher for longer. But the year-over-year price growth would also show moderation.

{snip}

[progree]

6. Bar graphs, CPI and Core CPI including December (report released 1/12/23)

CPI graph from starfury,
https://cpiinflationcalculator.com/the-consumer-price-index-dropped-0-1-seasonally-adjusted-and-rose-6-5-annually-in-december/



CORE CPI thru December monthly changes in tenths of a percent: