US Inflation Update

Data Preview & Forecast

• MUFG forecasts January 2026 core CPI monthly growth (MoM) of 0.253% and annual growth (YoY) of 2.644%.
• The base effect is expected to contribute 0.45% points to YoY growth in core CPI, the highest contribution since April 2024.
• What to watch out for: Leading indicators suggest elevated MoM growth in airline fares (though winter storms may have been disruptive) and accelerated MoM growth in used autos. Ending of ACA subsidies are also set to raise health insurance premiums with an eventual flow through into CPI health services. The near-term trajectory of OER is unclear following the Oct data disruptions.
• Special factors: Winter storms and extreme cold weather in January may lessen inflationary pressures on “flexible” priced items.

Market Thoughts

• The price action as of late is indicative of markets that lack conviction. This makes the setup into this CPI release tricky following the major up/down moves in both rates and risk assets post NFP. In general, these kind of movements are not confidence builders.
• That said, it’s possible that something more ominous is coming. It perhaps is a combination of the market seeing through the NFP release (where it was less strong than suggested) and cracks forming in risk taking with the realization that AI is disruptive for margins.
• In this environment, data updates might trigger a reaction that lacks a follow-through. Unless the CPI data breaks hard in one direction or another, we suggest waiting until the dust settles before trading it. Overall, we maintain our view that rate cuts are being underpriced.