US inflation higher than expected in January

Resilience of headline and core CPI is set to impact the timing of potential rate cuts later this year.

13 February 2024

The last time we had US annualised Consumer Price Index (CPI) inflation below 3% was back in March 2021 when we were all nursing sore arms after receiving the first of what has now become numerous Covid vaccines. And today, it was hoped that CPI would fall from 3.4% in December to 2.9% in January, making the closest approach to the 2% target for some time. However, it disappointed and we saw CPI come in at 3.1% annualised in January.

Since the 2007-08 Global Financial Crisis, US inflation has posted above 3% for 42 months, with 34 of those months being consecutive in the last three years. More recently the Federal Reserve (Fed) has poured cold water on market hopes for early and sharp rate cuts and, with equally stubborn PCE inflation prints, it should be obvious that they will not move quickly. Only continual prints over a few quarters of on-target (or below) inflation will give the Fed the comfort to act, and sadly this particular CPI print will not give much cheer to the bond bulls. It may be that in this post-pandemic world with the current geopolitical headaches, the argument for inflation to fall meaningfully below target might be wishful thinking.