Week Ahead: US consumer prices to guide Fed?

Inflation is still the watchword as far as the United States economy is concerned. This week sees the release of the latest CPI report, plotting January’s numbers. Has inflation peaked, or are there further signs it is broadening? And will another hot reading kick some clarity into the Fed’s rate hike plans?

US CPI inflation: the dog that still bites

Really, the week’s only big data release comes in the form of the latest US Consumer Price Index numbers.

As it stands, the CPI is at its highest for 40 years. Inflation has continued to run hot while the United States continues its economic recovery.

The latest print, released last month showing December 2021’s numbers, showed some staggering increases. CPI was up 7.0% year-on-year in December. On a monthly basis, the index rose 0.5%.

Core CPI, which removes volatile fuel and food prices, advanced 5.5% year-on-year and was up 0.6% month-on-month.

Consumers across the country are feeling the pinch. Everything from petrol to fruits and vegetables, to clothing, to rents, is up throughout the US. It’s piling on political pressure onto Joe Biden, as well as onto the Federal Reserve.

We do know how the Fed is planning on combating rising inflation: rate hikes and plenty of them.

The first is scheduled for March but the roadmap on where to go after appears to be non-existent. The various individual Fed policymakers seem unsure.

For instance, San Francisco Fed President Mary Daly wants to see a more data-driven approach following March’s proposed rate hike. Her counterpart at the Richmond Fed, Thomas Barkin, says he wants the US to be better positioned before committing to any further interest rate increases.

On the other hand, Philadelphia Fed President Patrick Harker is pushing for four 25 basis point hikes across 2022.

“If inflation stays where it is right now and continues to start to come down, I don’t see a 50-basis-point increase,” Harker said. “But if we see a spike, then I think we might have to act more aggressively.”

Either way, something’s got to give. The White House certainly thinks so.

“This report underscores that we still have more work to do, with price increases still too high and squeezing family budgets,” President Biden said in a statement following January’s CPI print.

Biden has come under fire recently for the rise in petrol prices hitting US drivers. His gamble of releasing crude onto the market from the United States’ Strategic Petroleum Reserve hasn’t really paid off with at-the-pump prices still very high.

Whether the Fed accelerates its rate hike programme after this week’s CPI print remains to be seen. Consumer Price Index inflation is not the Federal Reserve’s preferred inflation-gauging metric. That’s the Core PCE Index which is released at the end of the month.

However, another hot CPI print may provide further impetus for establishing a more rigid rate hike timetable.

Earnings Season rolls on…

It’s earning season, and while this week isn’t as busy as previous sessions, there are plenty of megacap reports coming on Wall Street to watch out for.

Some of the big names reporting this week include Disney, Coca-Cola, Twitter, Pfizer, and Uber.

Be sure to check out our earnings calendar to see who is reporting and when this earnings season.

Alternatively, keep scrolling to get a look at Wall Street’s top reporters for this week.

Major economic events

Key earnings data