US inflation is expected to slow further and possibly peak but remain well above the Federal Reserve’s target rate of 2%, intensifying the prospects of a 25-basis point hike in March.

Analysts foresee the monthly consumer price index to rise 0.5% from 0.1% M/M, the first increase in three months. The annual inflation rate is forecast to decline moderately to 6.2% from 6.5% Y/Y.

The annual core inflation is expected to have paced down to 5.4% from 5.7% Y/Y. The monthly core inflation is set to stand strong at 0.4% due to high rent and used car prices.

Analysts at ING Economics expect a “month-on-month rise of 0.5% and 0.4% for headline and core rates, respectively.”

“Auto sales and shelter should contribute to put a floor under core inflation for now, but we think these two components will start declining more sharply from the mid-second quarter, which should fuel a more sustained downward trend in inflation,” they said.

Nevertheless, it is still too early to be optimistic as January’s stellar jobs numbers, more than a half million, announced by the Bureau of Labor Statistics indicates that the presumed cooling economy remains allusive. (LiveSquawk - Continue Reading)

Americans anticipate income growth to slow and inflation to stay elevated in the Federal Reserve Bank of New York’s survey of consumer expectations. 

Median expected growth in household income declined 1.3 percentage point to 3.3% in the January survey, the largest monthly drop in data going back almost ten years, the New York Fed in a report Monday. Views on inflation one year ahead were unchanged at 5%. 

Expectations for income growth remain higher than their pre-pandemic levels. Still, increasing budget strain is showing in the results, with the average perceived probability of missing a minimum debt payment over the next three months ticking up in January.

Households were mixed about where inflation might head in the longer run. Inflation expectations softened to 2.7% three years ahead, but increased at the five-year-ahead horizon to 2.5%.

Consumers also anticipate steeper gains in gasoline and food prices than in December. (Bloomberg - Continue Reading)

The EU's executive branch published revised economic forecasts on Monday, saying the bloc will narrowly avoid a technical recession and has already passed its inflation peak as natural gas prices continue to retreat from the historic levels of mid-to-late 2022.

But the European Commission also warned that consumers would continue to feel the pinch of reduced purchasing power as inflation remains above 5%. 

"The EU economy beat expectations last year, with resilient growth in spite of the shockwaves from the Russian war of aggression," Commissioner for the Economy Paolo Gentiloni said. "And we have entered 2023 on a firmer footing than anticipated: the risks of recession and gas shortages have faded and unemployment remains at a record low." (Deutsche Welle - Continue Reading)

The Japanese yen is not taking part in the great moderation.

Forward-looking measures of equity and bond volatility around the world have been largely sliding this year on hopes that China’s reopening and disinflation will help the global economy navigate a soft landing.

But Japan’s currency is resisting the urge to join in on a period of relative calm. Volatility has stayed high ever since the Bank of Japan lifted the cap on Japanese bond yields in December. Uncertainty about the outlook of future policy moves is keeping yen traders on edge more so than their counterparts who trade other global assets, including Japanese equities. (Bloomberg - Continue Reading)