Janus Henderson: US CPI print — risks remain in both directions

Given that the recent market volatility has been in part down to the stronger-than-expected wages data earlier in the month, the market sharpened its focus on today’s US consumer price index (CPI) print.

In the event, headline CPI came in at 2.1%, a surprise compared to consensus estimates of 1.9%. Core CPI, which excludes the more volatile items such as food and energy, was 1.8% compared to consensus estimates of 1.7%. The US Treasury market sold off in response, led by shorter dated bonds. Inflation expectations moved higher while equity markets were softer.

Although this print was higher than expected, risks remain in both directions for the coming year. The recently announced fiscal stimulus package comes at a time when the labour market is already very tight, which, coupled with a weaker dollar, could lead to higher levels of inflation in the future. Equally, some idiosyncratic declines in mobile phone plan prices are due to drop out of the calculations, which should also lead to an increase in inflation.

On the other hand, should recent oil price declines extend further and money supply remain weak, inflation may move lower. The housing market is also likely to exert some downwards pressure on inflation, while structural economics, demographic and technological forces that have weighed on inflation, keeping it at supressed levels over recent years, are likely to continue.

Retail sales numbers were also released today, which surprised substantially to the downside, adding further pressure to risk assets.