Daily update

  • US January consumer price inflation is likely to produce a frenzy of media excitement. Technical factors mean that while inflation is slowing, it will slow more slowly. Many companies traditionally increase prices at the start of the year, and with profit expansion behind much of current inflation, that may be more relevant than normal. Reweighting the different components of inflation also (temporarily) slows disinflationary pressures. However the lived experience of US consumers is likely to be more disinflationary than the headline data.
  • Markets also care how the Federal Reserve interprets the data. Here, the news that Fed vice chair Brainard is to move to the White House is a bit of a blow. Brainard was one of the economic adults on the Fed’s leadership team.
  • Japanese 4Q GDP data was weaker than expected (with some downward revisions to earlier months), but the details were more supportive. Consumption was relatively good, and inventory declines (which should be reversed) were part of the weakness.
  • German wholesale prices data is due. UK labor market data is expected to show ongoing negative real wages, signaling weak pay bargaining power despite low unemployment. The US NFIB small business survey is scheduled—this tends to correlate to Republican sentiment.
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