[Preview] Will the US December CPI be announced tonight leading to the highest value update in the history of the S&P 500?

The US Bureau of Labor Statistics22:30 on Thursday, January 11, 2023 Japan timeuponConsumer Price Index (CPI) for US (2023) DecemberIt is planned to be announced. If it is accepted that the content increases the accuracy of interest rate cuts by the US Federal Reserve (Fed), it is said that a scenario that will serve as a tailwind for the S&P 500 stock price index to update its all-time high is also conceivable.

Meanwhile, according to predictions surrounding the December CPI, the growth rate of the composite index is expected to be higher than in November, and there is no denying a scenario where expectations of interest rate cuts do not expand and the response of the S&P 500 becomes limited.

What is the marketUS Consumer Price Index for December (YoY)ButExpected to be 3.2%The previous quarter was 3.1%. The month-on-month ratio is expected to be 0.2%, and the previous fiscal year is 0.1%. Exclude food and energyDecember Core Consumer Price Index (YoY)ButExpected to be 3.8%The previous quarter was 4.0%. The month-on-month ratio is expected to be 0.3%, and the previous fiscal year is 0.3%. Looking at the predicted consumer price index (month-on-month), disinflation has temporarily stagnated.

The core index is expected to be in the 3% range for the first time in 2 years and 7 months. Will disinflation continue until June?
The year-on-year core CPI is expected to continue to decline until June. It is said that there are two reasons for this.

firstIt is a base effect. The figure below shows the monthly trend of core CPI over the past 12 months. The inflation shock continued from 2022/12 to 2023/5, and the monthly inflation rate rose constantly by 0.4%, which was consistent with the core CPI inflation rate of 5% per annum.

The disinflation process began in June and July, and the monthly inflation rate plummeted to 0.16%. However, after that, the core CPI settled into a monthly inflation rate range of 0.2 to 0.3%, which is consistent with an annual inflation rate of 3%. Thus, the annual core CPI will continue to decline until June, when the “old” monthly inflation rate is replaced by the “new” inflation rate, and there is a high possibility that the core CPI will drop from 4% to 3% in mid-2024.

norThe second factor is housing cost inflation. Housing costs account for about one-third of the total CPI and are one of the key factors that caused the post-pandemic inflationary shock. The graph below shows the annual housing cost inflation rate. There is a deceleration trend, but even so, it is a 6.5% increase compared to the same period last year.

The rent inflation rate does not measure real-time rents reflected in new lease agreements, but rather measures the inflation rate of existing leases. In this case, the inflation rate of new tenant rents is a leading indicator of the “official” rent inflation rate, and the inflation rate for new tenant rents is already in the range of 2 to 3% before the pandemic, as shown in the graph below, and the pandemic inflation shock is far behind. Thus, it is predictable that housing cost inflation will fall towards 2-3% over the next 6 months.

Meanwhile, it is necessary to note that the number of cities where rents are falling is decreasing. This, combined with the fact that used and new housing prices recorded record highs, suggests the risk of inflation.

There is a high possibility that the increase in the January Composite Index (CPI) will shrink
According to JD Power, there is a high possibility that the steady decline in used car CPI in January and the further decline in gasoline prices will reduce the increase in CPI in January. UBS also predicts that the comprehensive index (CPI, seasonally adjusted) for January will rise by 12 bps and the core CPI by 18 bps. In other words, the year-on-year composite index (CPI) for January will drop to 2.9%, and the core index (CPI) will drop to 3.7%.

“Tenacious” inflation risk
In the United States, which is highly dependent on imported goods, the import price index was negative for 10 consecutive months, but the decline gradually narrowed and reached a low level since February. This reflects the possibility that inventory adjustments for many products are coming to an end, and there is a high possibility that there is less room for core inflation (excluding automobiles) to continue to decline.

The ISM service industry PMI price index recorded 57.4% in December. In December, prices rose in 11 service industries, including retail, medical and social assistance, construction, and education services. It is said that there is a possibility that this will affect core service inflation and increase the inflation rate.

Observation of interest rate cuts
According to the CME Group's FedWatch tool, FF interest rate futures traders will temporarily wait until March69.49% probability that interest rate cuts will be implemented, by June100% probability that interest rate cuts will be implementedI was looking at it.