Warning: There is a January-effect in Wednesday’s CPI report

February 10, 2025 at 07:53PM
The highlight of this week on the economic calendar is the January US CPI report. It will likely be a market mover and could change the narrative around the pace of Fed easing.

Consensus estimates:

CPI m/m +0.3%

CPI y/y +2.9%

Core CPI m/m +0.3%

Core CPI y/y +3.1%

Now it’s tough to say what every economist was factoring in but January is a particularly tough month to forecast. That’s because many annual adjustments are priced in January and those are generally focused on what the Fed calls ‘non-market inflation’. Or prices that tend to lag like insurance rates or hospital prices.

That’s important because those types of inflation has been problematic in conquering the ‘last mile’ of inflation.

The worry on Wednesday is that we see a return of that ‘January effect’ that boosted CPI last year and kicked off series of Q1 worries about inflation.

What’s at stake? Last year, with the hot CPI report the year-end pricing for rate cuts fell by a whopping 19 bps. This year there are only 42 bps of easing priced in so the stakes aren’t nearly as high and the market is far more focused on tariffs and politics at the moment. That said, the market will react and I’m biased towards US dollar strength on a hot print.

This article was written by Adam Button at www.forexlive.com.