Today CPI data could stir market sentiment

Awaiting the January CPI data release, inflation rates may decrease to 2.9%

By Ahmed Azzam | @3zzamous | 13 February 2024

Market open
  • US Inflation may fall below 3% for first time since 2021

  • January inflation report may support case for Fed rate cuts

Tech stocks surged in Asian trading today, with notable gains from SoftBank and Tokyo Electron driving market optimism. The Nikkei 225 soared to a fresh 34-year high, marking a significant milestone for investors. Meanwhile, the Kospi rebounded impressively, nearly erasing all year-to-date losses.

In contrast, US futures experienced a dip ahead of key inflation data scheduled for release today. European contracts, on the other hand, displayed a mixed pattern, reflecting a nuanced sentiment across global markets.

US CPI in focus

Analysts anticipate that US inflation likely decelerated to 2.9% year-on-year in January from the previous month's 3.4%. This would mark the first reading below the 3% threshold since March 2021, signaling a potential shift in inflationary dynamics and providing further evidence of disinflationary pressures.

The upcoming release of monthly US consumer price data on Tuesday is expected to reinforce the narrative of disinflation, particularly in services, following recent declines in goods prices. This trend is anticipated to strengthen the case for Federal Reserve interest-rate cuts, as policymakers monitor economic indicators closely.

Throughout the latter half of 2023, inflationary pressures subsided notably, driven primarily by declines in goods prices. While services inflation also moderated, the pace of deceleration was comparatively slower. This overarching trend has fueled expectations in financial markets for potential rate cuts this year.

Despite market speculation, Federal Reserve officials have recently tempered expectations for imminent rate reductions. Citing a robust labor market as a key factor, policymakers emphasize the importance of carefully monitoring disinflation trends before considering easing measures.

Thomas Barkin, President of the Federal Reserve Bank of Richmond, highlighted a lingering risk to inflation in the form of US businesses. Many companies have bolstered profit margins by implementing price hikes in recent years, a practice that could pose challenges to reversing inflationary trends and exert upward pressure on prices.