C Central Banks

U.S. December CPI Preview

12 January, 2023

*Headline CPI

The Bloomberg consensus for the headline CPI MoM was revised downward this week to -0.1%.

➡ Most of the top forecasters I follow expect a drop of -0.1% to -0.2%, reflecting the decline of energy prices.

➡ Betting Exchanges point a probability of ~75% regarding a CPI at or below -0.1%.

➡ -0.1% would be compatible with 6.4% YoY, which is also the latest level traded via Swaps (v 6.5% for the Bloomberg consensus)

*Core CPI

*The Bloomberg consensus for the Core CPI MoM remains unchanged at +0.3% (v 5.7% on a YoY basis).

➡ Core CPI is the most important part of the report and more especially the CPI services (ex-shelter). This measure has been highlighted by Powell and Daly during their latest speeches. They noted their inflation forecasts have been raised due to its resilience.

➡ On a YoY basis (NSA), it was +7.3% in Nov., yet, the trend was positive on a MoM basis in both Oct. and Nov. On a MoM basis SA, the index retraced by 0.10% in Oct. and 0.02% in Nov.

➡ The main focus will be on that component, which has been identified as “supercore” inflation. The fact is that shelter is a lagging indicator and market rents were already negative in 4Q22 (see below), suggesting that CPI rents could at least stabilize in late 2023.