Morning brief – US Inflation data focus

The US dollar is taking a bashing this morning ahead of the release of the US CPI report later today. One of the reasons is that US President Biden is set to speak after the CPI release.

Markets are thinking that the reason that Biden is speaking today is due to the fact that he will take the chance to congratulate himself that inflation is finally coming down.

The USDJPY is falling sharply after a speech from BOJ Governor Kuroda while the EURUSD pair has edged to a new multi-month high. GBPUSD is still holding onto gains but not considerably higher.

Gold is also leaping higher as it trades above key resistance while copper is making new highs. Gold strength is a sign that the buck is drastically weakening.

Basically, this is the final CPI release before the Feb 1^st, FOMC decision. The consensus is for a fall 6.5% y/y from 7.1% as the numbers continue to retreat from above 9% in the scary June report.

The Core CPI estimate is +5.7% y/y, while the prior reading was +6.0%. Goldman Sachs economists are slightly below estimates on core at 5.63% y/y and +0.25% m/m and also slightly lower on the headline at -0.06% m/m and 6.43% y/y.

Goldman write that “We highlight three key component-level trends this month. First, we expect new and used car prices to decline (-0.5% and -1.6% respective, reflecting increases in auto dealer promotion incentives and continued declines in used car auction prices.”

And “Second, we expect lower oil prices to lead to a 2% pullback in CPI airfares in December. Third, we expect shelter inflation to run at a slower sequential pace in this report (rent +0.67%, OER +0.64%) as rent declines for new-tenant leases start to offset the continued catch-up of continuing-tenant lease rents to market rates.”

Also, Goldman see year on year core inflation at 3.0% in December 2023 and 2.6% in December 2024. The highest estimate for the report is 6.8% from ANZ Bank and the lowest at 6.3% from CIBC.