US inflation shows little sign of decline, with core CPI forecast to rise 0.31% in January and 3.1% compared to last year. Core CPI coming at 0.3% MoM for 5 out of last 6 months readings imply that disinflation narrative has stalled in US. On component level, we expect strength in airfares, lodging away, and hospital services. Also much of the focus will be on owners’ equivalent rent (OER) given that unit-level weights that account for the proportion of single-family detached homes will be updated. As to super core services (+0.4% vs. +0.2%), we are expecting those price gains to strengthen relative to December. Also as part of an annual process, BLS will re-estimate seasonal factors for 2020-2024, which can change the contour of past inflation. Based on our CPI and PPI forecasts, we expect core PCE inflation rebounded to 0.280% m-o-m in January from 0.156% in December but because of a negative base effect, we expect year-on-year core PCE inflation to have moderated to 2.572% in January from 2.794% in December. While such a fall in twelve-month inflation should give some cheer to Fed officials, the high level of policy uncertainty around tariffs and other Trump administration policies will likely leave policymakers on the sidelines in the near term. With more signs of stability in the labor market, risks to the inflation outlook, namely from tariffs, will be the main determinant regarding whether January’s skip turns into an extended pause at lease till June’25 meeting.
