US inflation remains high, adding pressure for more Fed hikes

The rise of the Consumer Price Index (CPI, its acronym in English) of the United States of 0.5% in January compared to December, disclosed this Tuesday (14), should lead the Federal Reserve to continue with its hike in interest rates in the country to combat inflation.

In the annual balance, the CPI rose 6.4% in the period, slightly above market expectations, which expected a rise of 6.2%. Although close to projections, the data indicates that the Fed should not stop raising interest rates anytime soon.

“The expectation surrounding the CPI was high, as they are important numbers that may dictate the Fed’s next course. the payroll [dados de emprego] previously disclosed had already surprised the market, in addition to the reflection of many jobs created showing a market more heated than expected”, said Rodrigo Cohen, analyst and co-founder of Escola de Investimentos.

The US economy created 517,000 jobs in January, surprising data and showing that the job market is not yet ready to cool down. According to the most recent release by the country’s Department of Labor Statistics, the unemployment rate fell from 3.5% to 3.4%, reaching a minimum level not recorded since 1970.

“Our assessment is that given the current context of a tight labor market and persistent inflationary pressures, mainly core inflation [supercore]the Fed should continue raising the basic interest rate to fight the high price level”, highlighted the analysis team at Genial Investimentos.

“Add to this the recent upward revisions in inflation in recent months and the creation of jobs in January that were much higher than expected, mainly in the services sector”, he added.

Even though the most recent data have not been favorable to the retreat of the more aggressive monetary policy by the Fed, the flight plan of the North American BC to undertake high interest rates of 0.25 percentage points should not change from now on, in the view of analysts.

“What could change is the number of increases of this magnitude adopted in future meetings, with the monetary authority being able to take the interest rate to a level beyond the terminal rate of 5.25% projected by the members of the Federal Open Market Committee (Fomc )”, commented the Genial team.

According to data from the CME Group platform, 90.8% of American investors believe that the Fomc will raise interest rates by 0.25 points, while 9.2% think that the entity will be more aggressive and raise it by 0.50 points. point.

“I don’t believe that, with these higher-than-expected data, the Fed will stop raising interest rates anytime soon. With that, the next increase should be 0.25 percentage points, but I have no doubt that it could even reach 50 pp”, assesses Rodrigo Cohen.

Although inflation is persistent, XP points out that the disinflationary process in the country will advance significantly in the coming months, especially in the first half of 2023.

“In the first half of last year, the monthly changes in headline inflation averaged 0.81% (10.10% annualized) against an average of 0.24% per month in the second half (2.91% annualized). This means that as the year progresses and sky-high inflation figures are no longer taken into account, annual inflation will continue to drop significantly.”

The next Fed meetings to define the US interest rate will take place on March 21st and 22nd, with the release of the same on the second day of the meeting.