It's becoming harder to cut interest rates! Tariff transmission and seasonality pushed U.S. January inflation higher

On the evening of February 13 Beijing time, the U.S. Bureau of Labor Statistics (BLS) will release the January CPI data. This data is the first inflation report released during a complete data collection cycle since the record-breaking U.S. government shutdown in 2025, and it is also the first report following updates to seasonal adjustment factors and CPI category basket weights. Currently, market forecasts predict a year-over-year increase of 2.5% for the overall CPI (previously +2.7%) and a month-over-month increase of 0.3% (previously +0.3%); for core CPI, a year-over-year increase of 2.5% (previously +2.6%) and a month-over-month increase of 0.3% (previously +0.2%).

The January CPI data in the U.S. is expected to show a relatively strong monthly increase with a steady year-over-year trend. Structurally, the January data exhibits typical early-year effects. Core goods prices may rebound significantly. On one hand, prices naturally rise after holiday discounts end; on the other hand, companies tend to implement concentrated price adjustments at the beginning of the year, combined with the lagged transmission of previous tariff costs, which could lead to notable increases in categories such as furniture, appliances, entertainment products, and medical goods.

Within core services, volatile items like airfares, hotels, and auto insurance may rise, while rent and owner’s equivalent rent (OER) are expected to continue their slowdown trend, with monthly increases likely to be moderate compared to the same period last year. Super-core (core services excluding housing) may see a temporary uptick, but its directional trend still depends on wage and labor market changes.

It is noteworthy that this release will also update CPI basket weights and seasonal adjustment factors simultaneously. The BLS will use 2024 consumer expenditure survey data to update the weights and revise seasonal factors from the past five years. The weight adjustments may slightly increase the share of rent, OER, and some service items, while the annual seasonal adjustments could cause some reallocation of month-over-month figures by a few basis points. This means that even if there are no substantial changes in price pressures, the data may still appear somewhat stronger.