Written Commentary
As world waits on Trump ‘reciprocal’ tariff measures, focus turns to US CPI, along with India Industrial Production and CPI; plenty of central bank speakers and BoC minutes, smattering of earnings
US CPI: headline and core to remains slightly elevated in m/m terms, food and some goods price to offset fall in auto prices and easing housing inflation; annual revisions in focus
India: CPI seen easing sharply on fall in vegetable prices; Industrial Production expected to lose some momentum
EVENTS PREVIEW
Trump’s reciprocal tariff measures should be outlined today and will continue to cast a long shadow. US CPI will be front and centre on today’s light data schedule, in which the only other statistical items of note will be India’s CPI and Industrial Production, while the events schedule has a busy run of central bank speakers and the January BoC minutes (‘summary of deliberations’), and a further run of corporate earnings, amongst which Cisco and Kraft Heinz are likely to be among the highlights in the US.
** U.S.A. – January CPI **
– The consensus looks for headline and core CPI to rise 0.3% m/m, which should see headline y/y unchanged at 2.9%, and core edge down 0.1 ppt to 3.1%. A drop in auto prices, and a further easing in housing (shelter) pressures will likely see some offset from food and some goods prices. Eminently the surge in Friday’s Michigan 1-yr Inflation Expectations to 4.3% y/y from 3.3% is a point of concern, but Monday’s NY Fed Inflation Expectations were unchanged at 3.0%. While there will be market sensitivity to the data, today’s readings will have little impact on the Fed rate outlook, given Powell doubled down on the message that the Fed is taking a watching brief on measures being implemented by the Trump administration, and just as importantly that the US economy is ‘in a good place’ and there is no ‘rush’ to cut rates again. He will testify again to the House committee, but if yesterday’s lengthy testimony is any guide, many of the questions will relate more to political and regulatory issues rather than the outlook for the economy and rates.
** India – – January CPI, Dec Industrial Production **
– CPI should offer a backward justification for last week’s modest 25 bps RBI rate cut, with a drop to 4.5% y/y from 5.2% expected and will likely be paced mostly by food prices (even if this will be tempered by a jump in edible oil prices). The softer trend in the Manufacturing PMI, a setback in Infrastructure Industries Output, and a drop in non-oil exports predicate expectations of Industrial Production dropping back to 3.8% y/y from November’s 5.2%. While last week’s budget tax cuts should give a temporary boost to growth after a sharp slowdown in Q3, the cuts to subsidies and incentives to business and infrastructure investment suggest that the long-term target of 8.0% GDP is going be rather elusive, and equally the prospect of just one further 25 bps RBI rate cut only eases the RBI’s restrictive (though it terms this neutral) stance at the margins.
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