US January Inflation Rate Exceeds Expectations... Interest Rate Cut May Be Delayed Until June

January CPI rises 3.1% YoY
Core CPI inflation also 3.9%...Exceeds expectations

The US Consumer Price Index (CPI) inflation rate for January this year exceeded market expectations. The core CPI inflation rate, which the US central bank, the Federal Reserve (Fed), closely monitors, also surpassed forecasts. This has led to projections that the Fed's first interest rate cut will be delayed further.

On the 13th (local time), the US Department of Labor announced that the January CPI rose 3.1% year-on-year. This exceeded the expert forecasts of 2.9% compiled by Bloomberg News and The Wall Street Journal (WSJ). Compared to the previous month, it also increased by 0.3%, surpassing the expected 0.2%.

The core CPI, a key indicator closely watched by the Fed, rose 3.9% year-on-year, also exceeding the market forecast of 3.7%. Month-on-month, it increased by 0.4%, beating the expected 0.3%, and recorded the largest increase in eight months since May last year. The core CPI excludes volatile energy and food prices to show the underlying trend of inflation.

Initially, the market expected the January CPI inflation rate to be 2.9%, falling below 3% for the first time in two years and ten months since March 2021. However, with the January CPI surpassing initial market expectations, the timing of the Fed's rate cut is also expected to be pushed back.

Derek Tang, a monetary policy analyst economist at LH Meyer, commented on the timing of the rate cut, saying, "The tendency to skip March has become stronger, and now there is a temptation to postpone the cut to June." He added, "Since Fed Chair Jerome Powell mentioned that the inflation path will be challenging, officials will not be alarmed by a single increase, but these figures do not help alleviate their concerns about inflation rising above the target."

According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on this day reflected about a 41% chance that the Fed will cut rates by at least 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting in May. This is a significant drop from over 60% the day before. The probability of the Fed making its first rate cut in June rose from the previous day's 41% to 52%.

Government bond yields are on the rise. The US 10-year Treasury yield, a global bond yield benchmark, is trading at around 4.28%, up 10 basis points (1bp = 0.01 percentage points) from the previous trading day. The 2-year US Treasury yield is moving around 4.59%, up 12 basis points.