US Economics_ Inflation Weekly – Tariffs to have bigger bark than bite

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the US Economics sector, particularly analyzing inflation trends and the impact of tariffs on consumer prices. Core Insights and Arguments - Core CPI and PCE Inflation Forecasts: A forecast of a 0.34% month-over-month increase in core CPI for January is presented, leading to a 0.31% increase in core PCE inflation, which is softer than the 0.50% increase observed last January due to a slowdown in shelter inflation [1][5][7]. - Tariff Impact: The report discusses the potential impact of 10% tariffs on imports from China and delayed tariffs on Canada and Mexico, suggesting that the overall effect on prices may be more minimal than anticipated by the market [1][8][9]. - Consumer Inflation Expectations: A significant jump in 1-year ahead consumer inflation expectations was noted, rising from 3.3% to 4.3%, with longer-term expectations also increasing slightly [12][13]. - Wage Growth Trends: Average hourly earnings rose by 0.5% month-over-month in January, indicating some strength but not necessarily signaling reaccelerating wage inflation. The report highlights that wage growth dynamics may reflect a catch-up of wages for existing workers to higher market wages [10][11]. Additional Important Content - Inflation Metrics: The report provides detailed inflation forecasts for various metrics, including core CPI and core PCE, with projections indicating a gradual easing of inflation rates over the coming quarters [16]. - Service Prices: It is expected that service prices will slow down in the coming months, contributing to the overall inflation trend [17]. - PPI and CPI Relationship: The report emphasizes the relationship between PPI goods prices and potential increases in CPI goods prices, particularly as tariffs come into effect [22]. - Market Sentiment: The report notes that more firms are planning to raise prices than those planning to raise worker compensation, indicating a cautious outlook on inflationary pressures [29][32]. This summary encapsulates the critical insights and forecasts regarding inflation trends and economic indicators as discussed in the conference call, providing a comprehensive overview for investors and stakeholders in the US economy.