US January core CPI +3.3% vs +3.1% expected

Headline CPI:

• CPI +3.0% vs +2.9% expected
• Prior was +2.9% y/y
• m/m reading at +0.5% vs +0.3% expected
• Month-over-month unrounded 0.467%

Core measures:

• Core CPI 3.3% vs +3.1% expected
• Core CPI m/m +0.4% vs +0.3% expected
• Core unrounded +0.446% vs +0.225% m/m prior
• Real weekly earnings -0.3% vs -0.1% prior
• Core services ex shelter +0.757%
• Core-CPI services ex-rent/OER +0.5%
• Services ex energy +0.5%

This is a surprisingly hot reading for the fourth January in a row, you’d think they would learn. I’ve been warning about this since Monday and one driver was: Motor vehicle insurance up 2.2% in January and now up 11.8% in the past year.

Fed pricing for cuts this year is down to 31 basis points from 40 basis points before the report. Just taking the headlines at face value, reading of +0.4% on core and +0.5% on headline make it very tough to get to 2% inflation this year.

Some are talking about the fires in California boosting shelter and used cars (+2.2% m/m) or companies frontrunning potential tariffs by raising prices. That may be the case but unless it reverses in a hurry, the Fed is going to head to the sidelines until they get very close to 2% inflation.

As for FX< the US dollar naturally rose on this with USD/JPY making a particularly strong move of about 90 pips to 154.44, up nearly 200 pips on the day now. Other dollar crosses have been limited to 30-60 pips.

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