Ethtrader Market Update: January US CPI Data Surprises to the Upside, Signalling Sticky Inflation and Validating Federal Reserve's Cautious Policy Stance, ETH Trades Lower Post Data
US CPI Year-on-Year Analysis
Looking at the past two years of CPI data on the year-on-year measurement, it's clear that there was really good progress in 2023 with CPI starting at 6.4% and falling to 3.4% by the end of the year as shown by the red line in the chart on top, a reduction of 3.0%. However, the progress wasn't so great in 2024 with CPI in January at 3.1% and ending the year at 2.9%, a mere reduction of 0.2%, as you can see the red line starts to flatten once we cross into 2024. This helps to explain why the Federal Reserve shifted their focus back to inflation as they noted it remains sticky and they aren't seeing any progress.
However, today’s CPI data was higher at +3.0% in January as you can see from the red line above pushing higher, and it was the first reading above 3% since June 2024.
US Core CPI Year-on-Year Analysis
The Core CPI measure, which excludes the volatile items of food and energy also showed good progress in 2023 on a year-on-year basis falling 1.7% from 5.6% in January to 3.9% in December as shown by the blue line above. In 2024 the progress slowed down by more than half, starting at 3.9% in January and ending at 3.2% in December, a reduction of 0.7%, which was 0.3% higher than the CPI, with the flattening even more obvious in the core measure as shown by how much flatter the blue line is compared to the red line.
Today’s Core CPI data was also higher at 3.3%, and you can see both the headline and core CPI which are the red and blue lines ticking up together, and it is not a pretty sight!
Which Measure to look at: The CPI or the Core CPI?
In terms of which measure is more important, analysts seem to like looking at the Core CPI, but it is still not the most important inflation metric - that is the Core CPE Price Index, which I have included just for reference as the dotted black line in the chart above. However, the Core PCE only gets released at the end of the month so the CPI data is a good early indicator of how the inflation situation is developing, as you can see the black dotted line tracks the blue line more than the red line, because they are both core measures of inflation. Based on the movement of the blue line, it looks quite possible that the Core PCE will tick up at the end of the month too.
One thing to note is that the January CPI figures have not even factored in any tariff impacts yet, with the China tariffs only coming into effect in February. Expect policymakers in US to remain cautious as they wait to see how the trade war situation develops further given it has the chance to increase domestic inflation. Powell has already said yesterday that the Federal Reserve will be patient when cutting rates, and this higher inflation print adds even more justification for that.
US CPI Month-on-Month Analysis
The month-on-month data is less valuable in my opinion, but still interesting to see how there was some progress in May and June of 2024 where the CPI numbers actually went negative in June 2024 to -0.1% as shown by the red line above, but since then have rebounded and went back to the January 2024 level of +0.4% at the end of the year.
The Core CPI month-on-month has been equally stubborn, moving to +0.1% in June 2024 but then rebounding to +0.3% for 4 months in a row after that before ending 2024 at +0.2% as shown by the blue line.
The month-on-month figures for the CPI and the core CPI show a clear upward move in the chart above, with the CPI at +0.5% making the red line surge above every single level last year, while core CPI was at +0.4%, which is back to the beginning of last year’s level. For January 2025 the main contributors to rising prices were motor vehicle insurance, recreation, used cars and trucks, medical care, communication, and airline fares.
Crypto Impact
Post CPI data the crypto market didn’t take it very well, with ETH falling from the intraday high of $2665 to touch $2546 before rebounding again to trade at $2605 (-1.94% 24h). BTC also took a small hit at -1.24% 24h, but to be honest I expected worse from such a strong print. Traders should now be looking toward another inflation related data tomorrow, the US PPI as well as Powell’s testimony to the House Financial Services Committee later. Time to buckle up again guys!
DISCLAIMER: Economic data from forexfactory with additional info from the aggregated links on the site, charts are created with forexfactory data in Microsoft Excel, Asset prices from CMC and TradingView.