This week is all about key US economic data releases. And after the non-farm payrolls data yesterday, we’re not quite done yet as the consumer price inflation (CPI) report is what will bookend the week tomorrow. It’s a rare week in markets where we get a trifecta of big data from the US, but it is what it is.
So, what can we make of the US CPI report to come on Friday?
After the government shutdown in the fall, we should continue to see the distortions tied to that fade further with the latest report in January here. As a reminder, the brief shutdown in early February is not one to affect data collection so that won’t factor into play this time around.
For the better part of 2025, markets have been focused on looking for the impact of tariffs passthrough on prices. And to be fair, that has been rather limited even if there is evidence of it continuing to show up in the data. To put it more cleanly, tariffs haven’t been as impactful in driving up price pressures as markets had anticipated.
That being said, we are still likely to see more of that this time around again. As long as that continues to show up in core goods prices, it will be tough for the Fed to completely ignore that.
As always, the focus will stay on core prices when taking in the report as a whole. And if the annual estimate continues to keep in the middle range between 2% to 3%, it will be tough to see the Fed taking on a much more dovish stance than what they are sticking with currently.
Wells Fargo notes that:
“Although last January’s jump in prices will likely lead the updated factors to “expect” some early‑year strength, we are concerned that the pandemic period is still causing seasonal distortions in the data. Against that backdrop, we look for core CPI to rise 0.33% month-over-month in January, about 10 bps stronger than its average pace 2025. Delayed pass‑through of tariff costs is likely to underpin firmer core goods prices, while we anticipate a moderate boost to services inflation.”
Adding that:
“While both headline and core CPI should edge lower on a year‑over‑year basis in January, we do not expect much further cooling over the course of 2026 as easier fiscal and monetary policy lend some support to demand.”
Meanwhile, RBC is out saying that:
“Headline US price growth likely slowed in January, driven by a 3% seasonally adjusted pullback in gasoline prices from December. But, we look for core price growth to remain unchanged at 2.6% – stretching readings above the Fed’s 2% inflation target to almost five years.
Tariff passthrough to consumer prices has been limited so far, but business surveys continue to flag further increases in the pipeline, and core producer price inflation continues to run well above consumer price growth (3.5% in December).
We look for food inflation to hold close to 3%. Measured year-over-year shelter inflation is still above 3% despite being lowered in November and December by a methodological quirk due to the US government shutdown in October that should reverse by April.”
Lastly, here is Goldman Sachs’ estimates for the report:
“We expect a 0.33% increase in January core CPI (vs. +0.3% consensus), corresponding to a year-over-year rate of 2.52% (vs +2.5% consensus). We expect a 0.24% increase in headline CPI (vs. +0.3% consensus), reflecting higher food (+0.45%) but lower energy (-1.3%) prices. Our forecast is consistent with a 0.31% increase in core PCE in January.”
