Rate-cut expectations have surged (dovishly) higher this week (along with tumbling Treasury yields) amid a mixed macro picture (Labor market 'good', Retail sales bad, Housing ugly).

Today could change all that as CPI for January prints with risk skewed to the upside. January brings annual resets and they tend to surprise on the high side.

Despite the 'hot' whisper numbers (and 4 previous Januarys in a row of upside surprises), headline consumer price inflation came in cooler than expected in January (+0.2% MoM vs +0.3% expected). That pulled the headline CPI down dramatically from +2.7% to +2.4% - near the lowest in 4 years...

Source: Bloomberg

Food cost inflation is slowing, Energy is deflating...

Core CPI printed +0.3% MoM (in line with expectations), lowering the YoY change in core prices to +2.5% - the lowest since March 2021...

Source: Bloomberg

Goods inflation is clearly lacking (despite UMich respondents being sure we'd by hyperinflating by now)...

The much-watched SuperCore CPI (Services Ex-Shelter) rose notably (+0.6% MoM) but the YoY figure remains at its lowest since Sept 2021...

Driven by a big jump in Transportation and Education costs...

CPI Highlights:

• The Shelter index rose 0.2% in January and was the largest factor in the all items monthly increase. The food index increased 0.2% over the month as did the food at home index, while the food away from home index rose 0.1 percent. These increases were partially offset by the index for energy, which fell 1.5% in January.

• The core CPI index rose 0.3% in January. Indexes that increased over the month include airline fares, personal care, recreation, medical care, and communication. The indexes for used cars and trucks, household furnishings and operations, and motor vehicle insurance were among the major indexes that decreased in January

On a YoY basis, the all items index rose 2.4% for the 12 months ending January, after rising 2.7% for the 12 months ending December. The all items less food and energy index rose 2.5% over the last 12 months. The energy index decreased 0.1% for the 12 months ending January. The food index increased 2.9% over the last year.

• The index for all items less food and energy rose 2.5 percent over the past 12 months. The shelter index increased 3.0 percent over the last year. Other indexes with notable increases over the last year include medical care (+3.2 percent), household furnishings and operations (+3.9 percent), recreation (+2.5 percent), and personal care (+5.4 percent).

CPI Details:

• The index for all items less food and energy rose 0.3 percent in January.

  • The shelter index increased 0.2 percent over the month.

  • The index for owners’ equivalent rent also rose 0.2 percent in January as did the index for rent.

  • The lodging away from home index fell 0.1 percent over the month.

• The index for airline fares increased 6.5 percent over the month.

• The personal care index rose 1.2 percent in January and the recreation index rose 0.5 percent.

• The index for communication rose 0.5 percent over the month and the index for apparel increased 0.3 percent.

• The new vehicles index rose 0.1 percent in January. The medical care index increased 0.3 percent in January.

• The index for hospital services increased 0.9 percent over the month and the index for physicians’ services rose 0.3 percent.

• The prescription drugs index was unchanged in January

• The household furnishings and operations index decreased 0.1 percent over the month.

• The index for motor vehicle insurance decreased 0.4 in January.

Electricity costs have never been higher...

On a shorter-term basis, inflation is slowing - plain and simple...

For now, we seem to be avoiding a 1970s redux in Fed policy error helping to re-ignite an inflationary rebound...

Source: Bloomberg

...but time will tell ('run it hot').

On the other side of the ledger, January saw real average weekly earnings rise 1.9% YoY - its highest since March 2021...

Finally, according to JPM's CPI market reaction matrix (based on what the core CPI MoM prints), we should expect a solid up day for stocks:

• Core MoM prints above 0.45%. SPX loses 1.25% - 2.5%: odds 5.0%

• Core MoM prints between 0.40% - 0.45%. SPX gains 0.25% to loses 75bps; odds 25.0%

• Core MoM prints between 0.35% - 0.40%. SPX gains 0.25% to 0.75%; odds 42.5%

• Core MoM prints between 0.30% - 0.35%. SPX gains 1% - 1.5%; odds 22.5%

• Core MoM prints below 0.30%. SPX gains 1.25% - 1.75%; odds 5.0%

For now, what we do know is that the mnainstream media's constant fearmongering over Trump Tariff-flation was yet another canard crushing the PhDs' credibility even further.