U.S. Consumer-Price Index Out Today; RBA's Inflation Uncertainty By James Christie

Good day. Economists polled by The Wall Street Journal expect the Labor Department's monthly inflation report that comes out today will show overall consumer prices rose 2.9% in January from a year earlier, which would be the smallest increase since March 2021. They also expect core prices, which exclude food and energy items, rose 3.7%, for the slimmest gain since April 2021. The Federal Reserve's preferred measure of inflation, from the Commerce Department, will come out later this month, and it has been running lower than the Labor Department's. Even so, inflation last month was likely still running above the Fed's 2% target. Elsewhere, Marion Kohler, the head of economic analysis for the Reserve Bank of Australia, cautioned that inflation might be sticky. The central bank forecast last week that inflation in Australia will return to its target by the end of 2025, with the midpoint reached in 2026. "Inflation is coming down, but it is still high and it will take some time before it is back in the RBA's 2% to 3% target range," Kohler said.

Now on to today's news and analysis.

Top News What to Watch in the CPI Report: Will Inflation Fall Below 3%?

Prices are still far above where they were before the pandemic, especially for goods that most Americans buy often, such as groceries.

The sting of those past price increases might be part of why so many Americans remain down on the economy. An analysis conducted by Goldman Sachs economists suggests that frustration with high price levels might have contributed to low confidence readings that persisted in the early 1980s even after inflation had slipped sharply.

Economists generally expect inflation to cool this year, though they caution that the process could be bumpy.

The Labor Department's monthly inflation report is set for release Tuesday at 8:30 a.m. Eastern time.

RBA's Kohler Sees Substantial Uncertainty Around Inflation Forecasts

Inflation in Australia is in retreat, but it will take some time before it returns to the desired target range and the risks around those expectations remain substantial, the Reserve Bank of Australia's head of economic analysis said.

U.S. Economy Senate Passes $95.3 Billion Ukraine, Israel Aid Package

President Biden's drive to send more aid to Ukraine took a big step forward, as the Senate passed a $95.3 billion package that also includes funds for allies Israel and Taiwan, overcoming the objections of a number of Republicans.

AI Starts to Threaten White-Collar Jobs. Few Industries Are Immune.

Decades after automation began taking and transforming manufacturing jobs, artificial intelligence is coming for the higher-ups in the corporate office, with the list of white-collar layoffs growing almost daily in recent weeks.

Cash-Flush Buyers Dip Into Distressed Commercial Real Estate

Turmoil in commercial real estate is sending jitters through regional banks and other lenders. But one group is pleased with the turbulence: investors sitting on piles of cash they raised to scoop up distressed properties.

America's ESG Hiring Boom Is Starting to Cool

American companies are hiring fewer people for roles related to environmental, social and corporate-governance issues as finance executives assess costs and seek faster returns on their investments.

Key Developments Around the World U.S. Seizes Iranian-Tied Cargo Jet Grounded in Argentina

The U.S. seized a Venezuelan-owned cargo jet with ties to Iran's Islamic Revolutionary Guard Corps that had been grounded in Argentina after its arrival two years ago prompted an investigation into possible terrorism ties .

The Aging Bureaucrat Frustrating the West's Plan for Gaza

Mahmoud Abbas insists on staying in power, snarling plans for Gaza , where the U.S. and its Arab allies want the Palestinian Authority, which controls parts of the West Bank, to govern in place of Hamas after the war with Israel.

U.K. Labor Market Remains Tight as Unemployment Falls

U.K. wage growth eased less than forecast , while unemployment unexpectedly ticked down, signaling a stubbornly tight labor market and reflecting inflationary pressures as the Bank of England weighs when to start cutting rates.

It's Crunch Time for One of Europe's Last Big Wall Street Players

Two years ago, C.S. Venkatakrishnan was unexpectedly thrust into the top job at British banking giant Barclays. Now, he faces a career-defining test , trying to succeed where his predecessors failed.

Financial Regulation Roundup Stalled IPO Market Leaves Many at Startups Eager to Unload Shares

Individual shareholders are increasingly turning to the secondary market to trade shares in still-private companies, providing a tailwind for a crop of venture-backed startups that help facilitate such sales.

How Wall Street Won a Battle Over Venezuelan Sanctions

A group of powerful Wall Street investors fed Washington evidence that showed Venezuelan bonds were being traded by investors with ties to Russia. They said Moscow was hoping to gain influence in the U.S.'s backyard.

Forward Guidance Tuesday (all times ET)

8:30 a.m.: U.S. consumer-price index for January


2 a.m.: UK consumer-price and producer-price indexes for January

5 a.m.: Eurozone gross domestic product for fourth quarter, second estimate; Eurozone industrial production for December

9:30 a.m.: Chicago Fed's Goolsbee speaks to Council on Foreign Relations

2:30 p.m.: Bank of Canada's Mendes speaks at Lazaridis School of Business & Economics at Wilfrid Laurier University

4 p.m.: Fed's Barr speaks at 40th Annual National Association for Business Economics Economic Policy Conference, Washington, D.C.

Research Three to Four ECB Rate Cuts Realistic This Year

D anske Bank Research's baseline scenario sees three interest-rate cuts of 25 basis points each by the European Central Bank this year, with risks skewed toward four rate cuts, Danske's ECB watcher Piet Haines Christiansen writes in a note. This view is based on a resilient labor market, yet subdued growth and a continued disinflationary process, he writes. A rate cutting cycle is likely to start in June, with cuts of 25 basis points per quarter, and 75 basis points by year-end, he writes. "We find risks skewed towards 100bp worth of cuts this year, with an additional rate cut in July ," he adds. Markets are pricing in 115 basis points of ECB rate cuts this year, according to Refinitiv.

-Emese Bartha

Australian Consumer Confidence Down as RBA Ponders Rate Hikes

Australian consumer confidence fell last week after the Reserve Bank of Australia left interest rates on hold while signaling all policy options remain on the table, including further interest rate increases. Confidence fell 1.2 points from the prior week, according to a survey by ANZ and pollster Roy Morgan. The four-week moving average was down 0.5 points. The RBA board left the official cash rate on hold at 4.35% last week with Governor Michele Bullock saying she couldn't rule anything in or out about the future trajectory of interest rates. Sentiment around current financial conditions dropped 1.5 points, while future financial conditions declined 2.1 points, the data showed. Consumers were more downbeat on the question of buying a major household item, with the subindex down 4.0 points over the week.

-James Glynn

Switzerland Central Bank Set to Lead the Way With Rate Cuts

Switzerland looks set to lead the world's richest nations by cutting interest rates this spring, economist Adrian Prettejohn at Capital Economics writes in a note after inflation eased at the start of the year. Consumer prices in the Alpine nation rose 1.3% in January compared with 1.7% in December, numbers show Tuesday, beating expectations for a slight uptick. With the closely-watched core rate also falling, policymakers at the Swiss National Bank should be encouraged that they can soon start cutting rates, Prettejohn says. "The numbers released today reinforce our view that the SNB will be the first G10 central bank to cut rates in this monetary-policy cycle," he says. The bank is likely to start easing in March, bringing the policy rate to 1.50% from 1.75% currently, CE expects.

-Joshua Kirby

Commentary What Mortgage Bonds Say About the Office Meltdown

Stand in the middle of the business district of any big U.S. city and the nearby buildings are emptier and a lot less valuable than they were four years ago, so the reality check for banks is just beginning, Carol Ryan writes.

Basis Points The U.S. federal budget deficit narrowed to $22 billion in January from $39 billion a year earlier, the Treasury Department said Monday. Economists surveyed by the Wall Street Journal had forecast a $21 billion deficit. For the first four months of the fiscal year, the deficit widened to $532 billion from $460 billion in the same period last year. (MarketWatch) U.S. consumers are optimistic about travel plans this year, with 91% saying they expect to travel domestically, according to a survey from Nationwide Travel Insurance. The survey also showed half of respondents are planning international travel. (Dow Jones Newswires) Germany will continue to offload stakes of companies in which it is a shareholder, the country's finance minister, Christian Lindner, told Bloomberg TV in an interview. Last week, Germany cut its stake in DHL owner Deutsche Post. (DJN) Inflation in India eased a little less than expected at the start of 2024, highlighting the continued challenge facing monetary policymakers in the South Asian nation. The country's consumer-price index rose 5.10% on year in January, compared with 5.69% in December, according to figures released Monday by the Indian government. Economists expected inflation to ease to 5.0%, according to a consensus of estimates compiled by FactSet. (DJN) Inflation expectations in New Zealand continue to fall, damping expectations of a further increase in official interest rates . Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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02-13-24 0723ET