It’s not often that Federal Reserve Chairman Jerome Powell highlights a specific piece of economic data that he’s looking forward to but he did just that at the latest FOMC meeting.
One piece of data I will be watching closely is the
scheduled revisions to CPI inflation due next month. Recall that a year ago,
when it looked like inflation was coming down quickly, the annual update to the
seasonal factors erased those gains. In mid-February, we will get the January
CPI report and revisions for 2023, potentially changing the picture on
inflation. My hope is that the revisions confirm the progress we have seen, but
good policy is based on data and not hope.
The current picture of CPI looks like this:
US CPI yy
US CPI mm
The obvious way to look at the revisions is that a higher CPI will mean rates that are higher for longer. However the tenor of the revisions will be important too. If all the upward pressure goes on the first half of 2023, that leaves more room for improvement in the months ahead.
The January CPI report is due next Thursday and is currently forecast up 0.2% m/m. Currently, the January 2023 CPI reading that will roll off is +0.5% m/m so that should put further downward pressure on the +3.4% y/y reading.
Of course, the core readings are also critical to the Fed right now and the best thing that could happen would be if core services inflation was revised lower. That would sooth the Fed’s biggest worry.