Core Insights - Wall Street is closely monitoring the upcoming January Consumer Price Index (CPI) release, with several investment banks predicting a rebound in core inflation due to the "January effect" and tariff cost transmission [1][3] - The consensus forecast for January's core CPI month-over-month growth is around 0.3%, with Bank of America and Citigroup both predicting a 0.3% increase, while UBS has a more aggressive forecast of 0.38% [1][3][5] - The divergence between goods prices and service sector inflation is a focal point, with rising goods prices driven by tariff cost pass-through, while service prices may show seasonal weakness, potentially signaling easing inflationary pressures [1][3][8] Goods Price Trends - The "January effect" and tariff cost pass-through are expected to drive strong performance in goods prices, with Bank of America forecasting a 0.40% month-over-month increase in core goods prices, while Citigroup anticipates a 0.31% rise [3][5] - Specific categories such as furniture (+0.35%), auto parts (+0.75%), and medical goods (+0.8%) are expected to reflect sellers' actions to pass on tariff costs [3][5] - UBS warns of measurement disruptions due to delayed data collection from November, which may impact January's core goods prices and airline ticket prices by approximately 5 basis points [5] Service Sector Inflation - There is significant divergence in expectations for service sector inflation, which will influence the overall CPI data's impact on Federal Reserve policy [8][10] - Citigroup predicts a 0.39% month-over-month increase in core services prices (excluding housing), which is lower than the typical 0.7% seen in January over the past two years [8] - Bank of America expects a slight cooling in service sector inflation compared to December, primarily due to anticipated declines in accommodation and airfare prices [10] Housing Inflation - Consensus among institutions suggests a moderate increase in housing prices, with Citigroup forecasting a 0.23% rise and UBS predicting a 0.26% increase in Owners' Equivalent Rent (OER) [10] - Bank of America notes that service sector inflation may cool slightly compared to December, influenced by the previous month's strong increases in accommodation and airfare prices [10] Policy Implications - Different interpretations exist regarding how the upcoming data will affect Federal Reserve policy, with Bank of America suggesting the current inflation environment is "neither too hot nor too cold" [11] - Citigroup maintains that if inflation data remains below expectations during the typically strong seasonal period at the beginning of the year, it could convince hawkish officials that persistent inflation is no longer a primary concern [11]

Group 1 - The Federal Reserve is expected to maintain interest rates unchanged during the upcoming meeting, with a significant reduction in the likelihood of rate cuts this quarter, potentially delaying monetary easing until after Chairman Powell's term ends in May [1] - A survey of 100 economists indicated that all respondents expect the Fed to keep the benchmark rate in the range of 3.50%-3.75% during the January 27-28 meeting, with 58% predicting rates will remain unchanged throughout the first quarter [1] - This marks a notable shift from last month, where most economists anticipated at least one rate cut in March [1] Group 2 - According to a report by Shenwan Hongyuan, U.S. inflation may exhibit a "high then low" characteristic in 2026, influenced by tariff transmission and tax cuts, with potential core PCE year-on-year rates of 2.8%, 2.6%, and 2.5% depending on the tariff transmission rate [2] - The macroeconomic outlook for the first half of the year suggests resilient growth, stable employment, and peak inflation, leading the Fed to potentially pause rate cuts, while the second half may see a resumption of rate cuts as deflation begins [2] - Key economic data to watch includes the UK CBI retail sales balance, U.S. Q3 GDP final annualized rate, initial jobless claims, personal spending, and PCE price index for November [2] Group 3 - Gold prices surged to a new historical high, driven by heightened risk aversion due to trade tensions, although recent comments from President Trump eased some of these tensions, limiting further gains [3] - The current trading price for gold is around 4820, with resistance expected near 4870 and support at approximately 4770 [3] Group 4 - The USD/JPY pair experienced slight gains, trading around 158.70, supported by short covering and a rebound in the dollar index due to easing trade tensions, although concerns over potential Bank of Japan intervention limited upside [4] - Resistance is noted around 159.50, with support at approximately 158.00 [4] Group 5 - The USD/CAD pair rebounded slightly, trading at around 1.3820, supported by short covering and technical buying near the 1.3800 level, while rising oil prices constrained further gains [5] - Resistance is expected near 1.3900, with support around 1.3700 [5]

Overview - The overall CPI for December in the US met expectations, while the core CPI was slightly weaker than anticipated, primarily due to weak performance in the goods sector. The December CPI year-on-year was 2.7% and month-on-month was 0.3%, aligning with market expectations. However, the core CPI year-on-year was 2.6%, slightly below the expected 2.7%, and month-on-month was 0.2%, compared to the expected 0.3% [1][5][43]. Structure - Vehicle inflation significantly weakened, with new and used car prices showing month-on-month changes of 0% and -1.1%, respectively, which had a considerable negative impact. In contrast, clothing, furniture, and toy prices, which are sensitive to tariffs, showed some month-on-month improvement, indicating that tariff transmission may still have room to operate. Statistical biases, such as double-month samples and holiday effects, may have influenced inflation but to a lesser extent than market expectations [2][18][44]. - Core service inflation in December saw an uptick, particularly in rent and super core services. The rent CPI increased by 0.4% month-on-month in December, up from 0.2% in September, although future rent inflation is expected to return to a cooling trend. Non-rent services, including medical and transportation services, also experienced inflation increases, with airfares rising to 5.2%, reflecting robust consumer demand in the US [24][44]. Outlook - In the first half of 2026, US inflation may still exhibit "stickiness," but a transition to a "disinflation" phase is anticipated in the second half. The implementation of tax cuts in early 2026 is expected to gradually boost household income, consumption, and inflation, thereby enhancing the final mile of tariff transmission. However, as the impact of tax cuts diminishes in the latter half of 2026 and the first-year tariff transmission concludes, inflation is projected to begin a sustained decline [29][34][45]. - The Federal Reserve's response function indicates that inflation is not currently the primary concern, and the pace of interest rate cuts may be "delayed." The Fed is expected to adopt a "data-dependent" approach in 2026, with potential rate cuts contingent on economic data showing significant weakness. The impact of the "Inflation Reduction Act" tax cuts on the economy and inflation will likely influence the timing of any rate cuts [34][45].

Overview - The overall CPI for December in the US met expectations, while the core CPI was slightly weaker than anticipated, primarily due to weak performance in the goods sector. The December CPI year-on-year was 2.7% and month-on-month was 0.3%, aligning with market expectations. However, the core CPI year-on-year was 2.6%, slightly below the expected 2.7%, and month-on-month was 0.2%, compared to the expected 0.3% [1][5][43]. Structure - Vehicle inflation significantly weakened, with new and used car prices showing month-on-month changes of 0% and -1.1%, respectively, which had a considerable negative impact. In contrast, clothing, toys, and other tariff-sensitive goods saw a month-on-month increase, indicating that tariff transmission may still have room to operate. Statistical biases, such as double-month samples and holiday effects, may have influenced inflation but to a lesser extent than market expectations [2][18][44]. - Core service inflation in December showed an uptick, particularly in rent and super core services. The rent CPI increased by 0.4% month-on-month in December, up from 0.2% in September, although future rent inflation is expected to cool down. Non-rent services, including medical and transportation services, also saw an increase, with airfares rising to 5.2%, reflecting robust consumer demand in the US [2][24][44]. Outlook - In the first half of 2026, US inflation may remain sticky, but a transition to a "disinflation" phase is anticipated in the second half. The implementation of tax cuts in early 2026 is expected to gradually boost household income, consumption, and inflation, thereby enhancing the last mile of tariff transmission. However, as the impact of tax cuts diminishes in the latter half of 2026 and the first-year tariff transmission concludes, inflation is projected to begin a sustained decline [3][29][34][45]. - The Federal Reserve's response function indicates that inflation is not the primary concern at this time, and the pace of interest rate cuts may be delayed. The Fed is expected to adopt a data-dependent approach, considering rate cuts only if economic data shows significant weakness. The impact of the tax cuts from the "Inflation Reduction Act" on the economy and inflation will likely influence the timing of any rate cuts [3][34][45].

Overview - The overall CPI for December 2025 in the U.S. was 2.7% year-on-year and 0.3% month-on-month, meeting expectations, while the core CPI was slightly weaker at 2.6% year-on-year and 0.2% month-on-month, below the expected 2.7% and 0.3% respectively[1][5]. - The market reaction to the CPI data was muted, with a slight increase in "rate cut trades" but overall performance remained stable[1][5]. Inflation Structure - Core goods inflation in December weakened significantly, primarily due to vehicle inflation, with new and used car prices showing 0% and -1.1% month-on-month respectively[2][14]. - Core services inflation saw an uptick, particularly in rent and super core services, with rent CPI increasing by 0.4% month-on-month compared to 0.2% in September[2][14]. Outlook for 2026 - Inflation in the first half of 2026 may remain sticky, but a "de-inflation" phase is expected in the second half as tax cuts take effect, potentially boosting consumer income and spending[3][25]. - The Federal Reserve's rate cut timing may be delayed, as inflation is not currently the primary concern, and any decision will depend on economic data trends[3][30]. Risks - Potential risks include escalating geopolitical conflicts, unexpected economic slowdown in the U.S., and the Federal Reserve adopting a more hawkish stance if inflation proves more resilient than anticipated[3][36].

Inflation Data - December CPI increased by 0.3% month-on-month and 2.7% year-on-year, aligning with market expectations[1] - Core CPI rose by 0.2% month-on-month and remained flat at 2.6% year-on-year[1] Energy and Food Prices - Energy prices saw a year-on-year increase of 2.3%, down from 4.2% previously, with energy commodities dropping by 3.0%[1] - Food prices increased by 3.1% year-on-year, with household food rising by 2.4% and non-household food by 4.1%[1] Core Inflation Insights - Rent prices increased by 3.6% year-on-year, while owners' equivalent rent remained stable at 3.4%[1] - Core services CPI recorded a year-on-year increase of 3.0%, with medical care services at 3.5%[1] Tariff Impact - Tariff price transmission remains limited, with CPI for goods excluding food and energy at 1.4% year-on-year[1] - New vehicle prices increased by only 0.3% year-on-year, indicating subdued price trends despite the sales season[1] Market Reactions - U.S. Treasury yields slightly declined, with the 2-year yield at approximately 3.52% and the 10-year yield at around 4.17%[1] - Major U.S. stock indices faced pressure, with the Nasdaq down by 0.2% to approximately 23,694[1]

Core Insights - The December core CPI growth rate was below Wall Street expectations, marking the lowest year-on-year growth in nearly five years, indicating a potential easing of price pressures [1][5] - Market analysts believe that while this data provides a clearer signal of declining inflation, it is insufficient to prompt the Federal Reserve to lower interest rates in the upcoming meeting [3][7] Inflation Data Summary - The December core CPI increased by 0.2% month-on-month, lower than the consensus expectation of 0.3%, and year-on-year growth was 2.6%, matching the lowest level since March 2021 [5] - The overall CPI rose by 0.3% month-on-month and 2.7% year-on-year, aligning with economists' forecasts [5] - Housing costs were the largest contributor to the overall CPI increase, rising by 0.4% month-on-month, the highest increase in four months [5] Price Trends - Declines in automobile and furniture prices helped offset the rise in housing costs, with used car prices dropping by 1.1% month-on-month [6] - Food prices increased by 0.7% month-on-month, the largest rise since 2022, while recreational prices surged by 1.2%, marking a record high [6] - Core goods prices remained stagnant, indicating that tariff impacts on consumers were milder than expected [6] Federal Reserve Outlook - The Federal Reserve is expected to maintain interest rates in the upcoming January meeting, with market expectations for a rate hold exceeding 97% [4][7] - There is a need for more evidence of a weakening labor market or declining price pressures before the Fed considers rate cuts [3][7] - The "super core" CPI, which excludes housing and energy costs, rose by 0.3% month-on-month, with a year-on-year rate of 2.7%, down from approximately 4% a year ago [8]

Core Viewpoint - The December CPI data in the U.S. is expected to show a significant rebound due to statistical distortions from the government shutdown, rather than genuine inflationary pressures [1][4]. Group 1: CPI Predictions - Morgan Stanley forecasts a notable increase in the core CPI for December, with a month-on-month growth of 0.36%, significantly higher than the average of 0.08% in October and November [1][3]. - The likelihood of the core CPI rounding to 0.3% or 0.4% is considered equal, but the risk of reaching 0.5% is higher than 0.2% [3][8]. - The December data will provide clearer insights into the transmission of tariffs to consumer prices, which had been absent in the October and November data [3][10]. Group 2: Statistical Distortions - Two main statistical biases due to the government shutdown are expected to affect the December CPI data: - The dual-month sampling bias, which has led to an underestimation of inflation in October, is projected to contribute approximately 8 basis points to the December core CPI [4]. - The holiday discount bias, resulting from delayed price collection in November, is expected to add an additional 3 basis points to the core CPI prediction [4]. Group 3: Inflation Trends - Core goods inflation is anticipated to reach a new high for the year, with a projected month-on-month increase of 0.59% in December, driven by rising prices in new and used cars, clothing, and other core goods [5]. - Rent inflation is expected to normalize, with the owner's equivalent rent (OER) projected to grow by 0.27% month-on-month in December [5]. - Overall CPI is expected to rebound with a month-on-month growth of 0.37% and a year-on-year increase of 2.7% [5]. Group 4: Key Focus Areas - The uncertainty surrounding the magnitude of the rebound is acknowledged, with the potential for actual data to exceed the forecasted growth [8]. - The sustainability of the slowdown in housing inflation will be assessed with December serving as a clean observation point following significant declines in September [9]. - The timing of tariff transmission effects is crucial, as December data will be a key verification window for the impact of tariffs on core inflation, which is expected to contribute an additional 45 basis points [10]. Group 5: Market Reactions - Strong data may be dismissed by the market as statistical noise, while weak data could signal a significant cooling of inflation [11]. - The asymmetry in market reactions suggests that if December CPI falls below expectations, it could significantly boost interest rate-sensitive assets, whereas data that meets or slightly exceeds expectations may not provoke strong market responses [11][14].

Core Insights - The U.S. inflation data is expected to show a year-on-year CPI increase of 3.1% for September, marking the highest inflation rate since May 2024 and indicating a fifth consecutive month of acceleration [1] - The core CPI is also anticipated to remain at 3.1%, reflecting persistent inflationary pressures [1] Group 1: Inflation Trends - The CPI data may have a slightly higher sampling error due to increased reliance on online surveys during the government shutdown, which lasted three weeks [3] - Despite rising prices, lower rent increases may help to moderate the overall inflation rate [3] - The current inflation rate has decreased from 3% in January to 2.9% in August, but it still exceeds the Federal Reserve's target of 2% [8] Group 2: Economic Implications - The recent rise in inflation highlights the impact of tariffs, which have contributed approximately 25-30 basis points to the core CPI year-on-year [6] - Economic growth expectations are being adjusted upward as inflation surpasses the Federal Reserve's target, with businesses warning of impending price increases [6] - The Federal Reserve's preferred inflation measure, the personal consumption expenditures price index, has risen from a recent low of 2.3% in April to 2.7% in August [8] Group 3: Market Reactions - The upcoming CPI report is expected to create significant market volatility, regardless of the data outcome, as it is the first major report since the government shutdown [10] - If inflation exceeds expectations, gold prices may face downward adjustments, while weaker inflation data could reinforce expectations for multiple rate cuts by the Federal Reserve before year-end [11] - A significant deviation in core CPI from expectations could either alleviate or exacerbate market concerns regarding inflation and the Federal Reserve's policy space, impacting stock market performance, particularly in interest-sensitive sectors [11]

Core Insights - The U.S. government shutdown has entered its fourth week, leading to a "data famine" on Wall Street, with the delayed release of the Consumer Price Index (CPI) report expected to miss its optimal impact on the market [1] - The market anticipates a core CPI increase of 0.3% for September, slightly below expectations, with tariff pressures expected to raise prices in categories like communications and household goods [1][2] - Despite potential higher CPI data, the market's view on the Federal Reserve is unlikely to change significantly, with nearly 100% certainty that a 25 basis point rate cut will occur in the upcoming meeting [1][4] CPI Predictions - Predictions for the core CPI vary, with estimates ranging from 0.2% to 0.4%, but the majority expect a 0.3% increase [2] - Goldman Sachs forecasts that the impact of tariffs will contribute approximately 0.07 percentage points to core inflation, primarily affecting sensitive categories [2][3] - Excluding tariff effects, underlying inflation pressures are diminishing, supported by a decrease in housing rent and labor market contributions [2] Tariff Impact and Market Sentiment - The uncertainty surrounding the timing and extent of tariff transmission to consumer prices is a key focus for Wall Street [3] - BNP Paribas views the September CPI as a critical checkpoint, suggesting a downward risk due to moderate housing costs and limited tariff transmission [3] - Citi expects a core CPI increase of 0.28%, indicating that weakening labor and housing markets are reducing inflation risks, supporting further easing by the Federal Reserve [3][4] Market Reactions and Federal Reserve Outlook - The CPI report is unlikely to alter market expectations for a rate cut, with projections indicating a total of 54 basis points of cuts by year-end [4][5] - Market volatility is anticipated if CPI data exceeds expectations, with some analysts viewing it as a buying opportunity due to strong economic fundamentals [7] - The Federal Reserve's recent meeting minutes reveal a divergence in views among officials regarding inflation and labor market conditions, with a consensus that inflation impacts are diminishing [5][7]