Inflation notched up again in January, hitting a multi decade high (again) of a 7.5% year over year price increase, slightly ahead of expectations for a 7.3% rise. Compared to December, prices increased 0.6%. Price increases were broad across the economy while energy, food, and rents continue to push the index higher. Core inflation, which excludes food and energy, rose 6.0% and previously quiet categories, such as medical services, rose.
Rate hike expectations continue to shift upwards with the Fed futures market pointing to a high probability of a 50 basis point hike in March, but as of Friday afternoon that probability shifted to nearly 50/50 between a 25 and 50 basis point hike. This is quite the shift from the end of January when that probability was in the single digits. Looking out further, the market is pricing in five to six hikes for the entire year.
Consumer sentiment dropped further in February, down over 5 points to 61.7, from 67.2 in January. Future expectations fueled the downward move, though feelings on current conditions also fell.
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