Shortly after the US inflation release, the tech-heavy Nasdaq 100 index traded unchanged on the day, experiencing a round of volatility. However, today’s market reaction seems to be very mild, considering it was expected to be another critical CPI report.
US inflation rises more than projected
Inflation in the United States, as measured by the Consumer Price Index (CPI), decreased to 6.4% annually in January from 6.5% in December, according to the US Bureau of Labor Statistics. This result surpassed the market’s forecast of 6.2%. The CPI increased 0.5% on a monthly basis, confirming analysts’ expectations. Services CPI reached its highest level since July 1982, although Goods inflation continues to decline.
As projected, the Core CPI, which excludes volatile food and energy costs, increased by 0.4% monthly, bringing the annual rate down to 5.6% from 5.7%.
The index for shelter was by far the most significant contribution to the monthly rise for all things, responsible for over half of the monthly increase for all goods.
For Fed Chair Jerome Powell, shelter inflation — a “stickier” component of the CPI that has stayed stubbornly high — is a critical factor in determining the future direction of interest rates. Powell stated in an interview last week in Washington, D.C., that he anticipates a decline in home inflation by mid-year.
“There has been an expectation that [inflation] will go away quickly and painlessly; I don’t think it’s guaranteed that’s the base case,” Powell said last Monday at the Economic Club of D.C. “It will take some time.”
The food index climbed by 0.5% month-over-month, while the food at home index rose by 0.4%. The energy index grew by 2.0% month-over-month as all major energy component indices rose. Conversely, the indices for used automobiles and trucks, medical treatment, and airline tickets were among those that fell throughout the month.
The positive sentiment in the stock markets could remain intact as today’s hotter-than-expected CPI data failed to cause a significant drawdown. Thus, today’s high of $12,680 is the first strong resistance, with the next target near $13,000 for the Nasdaq index.
Nasdaq index 15 minutes chart, source: author´s analysis, tradingview.com