US Macro Insights: January 2025 CPI Preview

January 2025 CPI Preview

Rising inflation expectations: predictive of future inflation or misplaced?

January’s CPI monthly reading is expected to come in the same for headline and the core measures (0.3% for both). However, there is a risk that headline is slightly higher (due to weather related energy costs) and core slightly lower (due to OER catchup). With that said, we won’t see enough progress on inflation to really change the latest thinking of a “wait and see” approach to monetary policy.

Although nominal USTs have been establishing lower trading ranges, inflation expectations are back near local highs last seen at the start of 2025. Is the market predicting that there is higher inflation prints right ahead or just discounting the uncertainties associated with tariffs? We think the latter. Thus, if core CPI actually surprises to the downside, the risk is that nominals rally again given that the real component is already low (and was the driver the BEI move).