Despite financial markets recent preoccupation with commodity prices and China, US consumer inflation figures are still possibly the single most important piece of data for US bond markets.
The U.S Bureau of Labor Statistics has now released January CPI figures and the headline inflation rate came in at 0.00% for the month, the same as December’s figure and higher than the market’s estimate of -0.10%. Energy and food prices registered price falls and it appears these are the parts of consumer spending which are keeping the CPI at or near zero. All other categories experienced price increases over the month.
The year-to-date CPI figure rose +1.4% for the 12 months to January, up from December’s +0.7% and slightly higher than market expectations of +1.3%. Core inflation, which strips out the more volatile food and energy components, rose +0.4% for the month and +2.2% over the last 12 months, up from December’s respective figures of +0.3% and +2.1%. Revisions to past data over the last five years indicate monthly CPI and core CPI readings through 2015 were a little higher than previously-published figures.
US bond yields rose on the day with the yields of 2 year and 10 year bonds rising 5bps and 2bps respectively. In US cash markets, the odds for an increase in the Fed rate at the March meeting are still less than 10% and the odds of any increase in 2016 are less than 50%.