Tonight at 9:30, the US December CPI data will be released. As the last key data for the year 2022, it will directly affect the Fed's interest rate hike path and is highly concerned by investors around the world.
Due to the recent sustained low crude oil prices, inflation pressure has been further released. Currently, the market is relatively optimistic about this CPI data and generally believes that inflation growth will slow down further. The consensus expectation for CPI YoY is 6.5%, lower than the previous value of 7.1%; the consensus expectation for core CPI MoM is 5.7%, also lower than the previous value of 6%.
Source: TradingEconomics
1. Auto
Goldman Sachs sees a significant drop in auto prices.
On the one hand, used cars saw a net price decline in December auctions, with the used car subcomponent of the CPI expected to fall 1.6% in December.
On the other hand, new car prices are expected to fall by 0.5%, as a result of successive year-end holiday promotions.
Source: Goldman Sachs
2. Housing
The big banks are also relatively optimistic about housing prices.
Data from housing agents' online platforms show that the total amount of new rents signed recently significant declined in the year-over-year growth rate, offsetting the impact of high rents in the previous period to some extent.
Goldman Sachs expects rent growth to fall to 0.67% from 0.77% in November, and free housing to fall to 0.64% from 0.68%.
BNP Paribas also believes that the housing sub-component will grow at a slower pace than the previous value and will reach its highest point in Q2.
Source: Goldman Sachs
3. Airline ticket
The major banks generally believe that airfares will continue to decline, expecting to fall 2% in December.
On the one hand, Goldman Sachs sees lower crude oil prices easing upward pressure on airfares;
on the other hand, BNP Paribas points out that winter storms swept through Europe and the US starting in the second half of December, creating an additional shock to air travel demand and further accelerating the momentum for lower airfares.
Source: Goldman Sachs
Summary
On balance, institutions are generally optimistic about the December CPI data. Most of banks predict a lower-than-expected growth rate.
It is further assumed that if CPI is really lower than expectation again, the market will estimate that the strength and length of Fed rate hikes will be much lower, which is undoubtedly good for risk assets.
Finally, it is worth noting that the Fed has also repeatedly stressed that it is more concerned about inflation in core services inflation excluding housing.
Currently, BNP Paribas expects inflation in core services to rise 0.3% YoY, lower than the previous value, but still about 3.7% on an annualized basis. It's still significantly higher than the Fed's 2% average inflation target.
Goldman Sachs, on the other hand, predicts that US core CPI will fall to 3% at the end of this year.
Source: Goldman Sachs
With expectations of a recovery in China pushing up demand for industrial metals in emerging markets, prices of $Copper - main 2303(HGmain)$ and $ALUMINUM FUTURES - main 2303(ALImain)$ have both risen significantly recently. When combined with the slow reduction in growth in services other than housing, it could bring US inflation down to around 3% year-over-year and then will not fall any further. Before Fed declares a victory in controlling inflation, a shallow recession may happen.
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