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DATA HEATWAVE: CPI, MORTGAGE DEMAND

On this chilly February morning, investors gathered 'round and warmed their hands in front of a roaring, toasty data release.

Which is to say the prices of consumer goods and services heated up in the frigid month of January.

The Labor Department's Consumer Price Index $(CPI.UK)$ USCPI=ECI, which tracks the prices urban consumers pay for a basket of goods and services, arrived piping hot, in fact.

The index rose 0.5% on a monthly basis, an acceleration from December's 0.4% and hotter than the 0.3% consensus.

Year-on-year, the headline number rose to 3.0%, defying analyst expectations that it would hold pat at 2.9%.

Core CPI, which excludes volatile food and energy items, came in at 0.4% month-on-month, double December's rate, and landed at 3.3% on an annual basis, marking a 0.1 percentage point acceleration and landing well above the 3.1% predicted by economists.

The report casts into doubt whether Powell & Co will lower interest rates at all this year.

"Today's data confirms that inflation is still a problem, and obviously it upholds the Fed's stand on being cautious in lowering interest rates," Peter Cardillo, chief market economist at Spartan Capital Securities tells Reuters.

"Coupled with the prospects of the tariffs, it adds to inflation worries," Cardillo adds. "(President Donald) Trump has his hands tied. Will he pressure the Fed? Yes. Will the Fed blink? No."

Following Friday's warm wage growth data, today's CPI report points to a hot start to 2025:

Line-by-line, the news doesn't get better.

Energy, gasoline, transportation, new/used autos, prescription drugs, recreation, and airfares all registered monthly jumps of 1% or more.

Shelter and services, two closely watched categories increased on a monthly basis by 0.4% and 0.5%, respectively, and are up 4.4% and 4.2% year-on-year, much hotter than the 3.3% core number.

"Today's inflation report will make for very uncomfortable reading for the Fed," writes Seema Shah, chief global strategist at Principal Asset Management. "(The report) will not be received well by policymakers or markets alike."

Here's a look at shelter and services inflation against core CPI:

Separately, the cost of financing home loans edged a tad lower last week, provoking a 2.2% net increase in borrowing demand, according to the Mortgage Bankers Association (MBA).

The average 30-year fixed contract rate USMG=ECI shed 2 basis points to 6.95%.

While that failed to impress would-be homebuyers -applications for loans to purchase homes USMGPI=ECI decreased by 2.3% - refi demand USMGR=ECI more than made up for it, jumping 9.6%.

"Mortgage rates moved slightly lower last week, which led to the pace of refinance applications reaching its strongest week since October 2024," says Joel Kan, MBA's deputy chief economist.

The 30-year fixed rate is now mere 8 basis points above where it was during the same week last year.

Over that same time period refi demand is up 32.9%.

Purchase applications, considered a leading housing market indicators, are up 3.0% over the last 12 months.

(Stephen Culp)

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