Written by Millan Chauhan.

Last week we saw several economic data releases, which included the US Consumer Price Index (CPI) print rising by 6.4% in January 2023 on a year-on-year basis which was slightly above consensus expectations of 6.2%. The main drivers of inflation remain transportation services (namely airfares) and food. Within food prices, the cost of eggs has increased 70% on a year-on-year basis in January which is the most of any grocery item. This is due to the avian-influenza outbreak which has caused a contraction in the supply of chickens.

US Inflation has clearly cooled down as it peaked at 9.1% in June 2022. With the inflation print coming in slightly higher than expected, it could mean that the Federal Reserve continue to hike going further into 2023 as they attempt to curtail pricing pressures. As a reminder, the Federal Reserve has raised interest rates from 0.50% to 4.75% over the last twelve months.

In the UK, CPI rose by 10.1% in January 2023 on a year-on-year basis which was down from 10.5% in December 2022. The print was lower than expected and was further evidence that inflation may have peaked as the print was a five-month low. UK inflation remains much higher than in the Eurozone and the US but has been helped by lower energy price growth.

There are clearly strong signs of slowing inflation and there will be another inflation report due before the next Bank of England Monetary Policy Committee meeting on the 23rd March, when it will make an interest rate decision. Similarly, the Federal Open Market Committee in the US is set to meet on the 21st March where there will be another US Inflation report released mid-March for the Committee to consider going into that meeting.

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