US Inflation Rate Remains Sticky, With Core CPI at 3.9% in January

The US inflation report for January was just released and most CPI measures came higher than expected. The headline inflation rate came 2 points above expectations despite cooling off, while core CPI remained unchanged at 3.9% while expectations were for a decline. All markets were looking at this release and they’re piling in on the USD longs now.

The increase in shelter costs, marked by a 0.6% rise, has contributed to ongoing inflationary pressures. Concurrently, risk assets such as commodity dollars and US stocks have experienced a decline, accompanied by a rise in Treasury yields and the US dollar, as market participants respond to the heightened inflationary environment.

EUR/USD has depreciated from 1.0790 to 1.07. This decline has brought the pair closer to testing the previous week’s low prices and it is trying to break below this support level now. USD/JPY  pair has surged to a fresh high at 150.50 not seen since the middle of November. The price has surpassed the 150.50 significant swing level on the daily chart, indicating a strong bullish momentum in favor of the US dollar against the Japanese yen.

US January 2024 consumer price index data

• January CPI year-on-year (YoY) rose by 3.1%, surpassing the expected 2.9% and slightly lower than December’s 3.4%.
• CPI month-on-month (MoM) increased by 0.3% in January, exceeding the anticipated 0.2% and matching the previous month’s revised figure of 0.2%.

Core measures:

• Core CPI MoM grew by 0.4% (unrounded 0.39%), surpassing expectations of 0.3% and aligning with the previous month’s figure of 0.3%.
• Core CPI YoY stood at 3.9%, surpassing the expected 3.7% and unchanged from the previous month’s 3.9%.

Key components:

• Shelter increased by 0.6% compared to the prior month’s 0.4%, with a year-on-year (YoY) change of +6.0% versus +6.2% previously.
• Services less rent of shelter rose by 0.6% MoM, higher than the prior month’s +0.4%.
• Real weekly earnings decreased by 0.3%, slightly worse than the previous month’s -0.2%.
• Food prices increased by 0.4% MoM, higher than the previous month’s +0.2%, with a YoY change of +2.6%.
• Energy prices declined by 0.9% MoM, contrasting with the previous month’s +0.4%, with a YoY change of -4.6%.
• Rents increased by 0.4% MoM, matching the prior month’s +0.4%, while owner’s equivalent rent rose by 0.6%, slightly higher than the previous month’s +0.5%.

• Full report

Six-month core inflation reading rose to an annualized rate of 3.7% from 3.2% previously, indicating a sustained upward trend in core inflation over the past six months. Similarly, the three-month annualized rate climbed to 4% from 3.3%, reflecting a more rapid acceleration in core inflation over the most recent three-month period. The market response to these inflationary indicators has been notable, with strong demand for the US dollar evident

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