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January’s CPI Data: Nuances and Implications for Risk Assets

January’s CPI Data: Nuances and Implications for Risk Assets

In this article, we explain the January inflation data and why it matters to markets and specifically risk assets, elaborating on the CPI.

What is CPI?

The Consumer Price Index (CPI) measures the price change in a basket of goods and services purchased by households over a certain period.

It provides information about inflationary trends and is closely watched by investors. It has implications for monetary policy, financial markets, and risk assets.

CPI data for January 2022

The CPI data for January 2022 showed that prices had increased by 6.4% annually, down by 0.1% from the previous month. However, month-on-month inflation remained steady at 0.5%.

Shelter costs as the primary contributor to inflation

The Bureau of Labor Statistics reported that the increase in shelter costs was the most significant contributor to the monthly all-items increase, accounting for nearly half of the monthly increase.

Interest rates and their effect on shelter costs

The significant increase in housing costs is attributed to the sharp rise in interest rates from 0.25% to 4.75% last year. Further increases in interest rates could lead to a surge in housing costs, making it counterproductive.

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The effect of interest rates on mortgage owners

Interest rates apply to borrowers, and the most significant borrower is mortgage owners, including property developers and landlords. The increased mortgage costs are being passed on to renters, leading to higher shelter costs.

The nuance of the inflation data

The CPI data’s implications are significantly more nuanced than the headline suggests, with the housing market and interest rates playing a vital role in the trends. Therefore, the market treats the inflation data as no good news rather than bad news.

The expected interest rate hike

An interest rate hike of 0.25% is expected next month, with markets already pricing it in late last year when Fed’s chair, Jerome Powell, clarified that they might have to go higher.

GDP growth is a critical concern

The more significant concern for investors, however, is GDP growth. Investors might worry about how bad it could get if it continues to show a downtrend. Conversely, if growth is holding up at promising levels, there might be some relief as inflation continues to decline.

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Andrey Kunev

Reporter at CoinsPress

Andrey Kunev is a knowledgeable cryptocurrency content creator passionate about the crypto market. With extensive experience in market analysis and investment reporting, Andrey is a valuable asset to the CoinsPress team. As a frequent contributor, he offers insightful and comprehensive coverage of market trends, price fluctuations, and new advancements in cryptocurrency. Whether you're a seasoned investor or just getting started, Andrey's clear and concise writing offers a comprehensive look at the current state of the crypto market and its prospects. Stay up-to-date with CoinsPress's expert analysis and commentary on all things cryptocurrency.

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