Today we had the CPI revisions with the headline inflation number adjusted lower for December, and the initial reaction has led to a decline in the US dollar. This reaction partly reflects relief that the revisions were not higher, as observed last year.

The CPI Inflation Report after Revisions

• December CPI revised to +0.2% from +0.3%.
• December core CPI (excluding food and energy) remains unchanged at +0.3%.
• November CPI increased by +0.2% compared to +0.1% expected.
• October CPI rose by +0.1% from being unchanged.
• Q4 core CPI remains unrevised at a 3.3% annualized increase.
• Core six-month annualized CPI has decreased to 3.0% from 3.3%, which is a key metric monitored by the Federal Reserve.

The January inflation numbers from the US are scheduled for release on Thursday next week. Current estimates suggest a major decrease in the year-on-year (y/y) reading to 2.9% from 3.4%. This anticipated decline is largely attributed to the rolling off of the +0.5% month-on-month (m/m) reading from January 2023.

The bond market which is long seen to be the domain of “smart money,” now seems unclear following adjustments to the US CPI baseline. Despite the revisions, rates for the 2-year notes remain somewhat lower than before the revision, albeit the shift is not meaningful. Similarly, the US dollar remains weaker following the correction, albeit the loss is less dramatic than the first knee-jerk reaction. This shows that market players are still evaluating the implications of the CPI adjustments and may be taking a cautious approach while waiting for more information.