12 February 2025
If you are covering the latest US inflation data, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
“Annual US headline inflation rose to 3% in the 12 months to January, slightly above expectations. Core CPI came in at 3.3% which is a disappointing uptick compared to 3.2% reported last month. On a month-on-month basis core inflation rose by 0.4% in January, reversing the previous slowdown that had seen a smaller rise of 0.2% in December.
“While inflation has come in a little above expectations, the impact of this reading is still unlikely to shift expectations for interest rate cuts. At his Senate testimony last night, Federal Reserve Chair Powell reiterated the central bank’s intention to be patient when it comes to further rate cuts, and for now the market is not fully pricing in another quarter point cut until September. Trump’s policies of tariffs, tax cuts, deregulation and deportation are all expected to be inflationary to varying extents. A suggestion that the Fed could look through a one-off step change that could come from tariffs seems unlikely. Projecting confidence around a short-term bump from one-off tariffs could be unpopular within the Fed, particularly after post-pandemic inflation was labelled in this way but subsequently led to a feedback loop which means it is yet to be fully vanquished.
"Considerable uncertainty also remains around the ultimate breadth of Trump’s tariffs, but they seem likely to far exceed those introduced during his first term which had little impact on inflation. This is already impacting inflation expectations in some quarters, with the University of Michigan survey showing 1 year expectations up steeply to 4.3%, although other surveys have remained constant at 3%.
"This inflation report is also significant in that it reflects turn of the year price setting. This is a point when businesses often review their charges and put through an inflation backlog but may also adjust for expectations of future cost increases. Recent corporate surveys have already indicated an upturn in price pressures, and recent uplifts in economic growth forecasts could give them the confidence to push for more."
