The US Bureau of Labor Statistics will publish US CPI data for the month of December on January 12, 2023. After observing a cooling off in the November inflation numbers, traders and investors are now taking a shot at the December inflation numbers. Inflation is expected to fall below 7% for the first time since November 2021. Mohamed A. El-Erian, recently tweeted, “Consensus is for Thursday’s US CPI report to show a fall in headline inflation to 6.5% in Dec. As important as this moderation is, it won’t signal the passing of the inflation problem. For that, both core and the mix of price rises need to point to a lot less inflation stickiness.”

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After registering 7.7% year-on-year inflation in October, the November 2022 consumer price index was lower than expected at 7.1% (the forecast was 7.3%), indicating that inflation is slowing from its peak in decades. The November CPI reading represented the smallest 12-month increase since December 2021.

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After last week’s jobs report, which revealed salary increases were moderate and unemployment at its lowest level in decades, traders will be thinking about the US December inflation report, which is expected on Thursday at 8:30 a.m. Eastern Time.

Lower CPI data for December may reassure investors that the US Fed will be less aggressive in bringing inflation under its 2% target. Any considerable cooling may inspire bulls to return to the market, however, the US Fed may still be concerned about the rising core inflation data. While the cost of services has continued to rise, the cost of the majority of commodities has peaked recently.

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On Tuesday, Fed Chair Jerome Powell was speaking at the Sveriges Riksbank International Symposium on Central Bank Independence, Stockholm, Sweden. “Fed Chair Jerome Powell said that the central bank is strongly committed to lowering inflation, even though interest-rate increases to restrain economic growth could fuel political blowback,” informs Mitul Shah, Head of Research – Institutional Desk, Reliance Securities Ltd.

Inflation is falling but could it rise again? “Big Short” investor Michael Burry recently tweeted a caution about the resurgence of inflation – “Inflation peaked. But it is not the last peak of this cycle. We are likely to see CPI lower, possibly negative in 2H 2023, and the US in recession by any definition. Fed will cut and government will stimulate. And we will have another inflation spike. It’s not hard” – which is what Burry had tweeted about on January 2, 2023.

Stock market indices are trading flat ahead of the US CPI data release on Thursday. The next FOMC meeting is on January 31- February 1 to decide on the magnitude of a rate hike. A hike of 25 basis points may have been priced in by the markets if the US CPI for December comes out to be around 6.5%.