Come one, come all! “Super users” and novices alike! It’s CPI week in the US.

As it turns out, there were no “super users.” Last month’s CPI update, you may recall, was followed by a PR debacle at the BLS where, in an ill-fated attempt to address a flood of emails regarding a very hot read on OER in the January release, a staffer Bcc’d curious analysts on a group email, addressing recipients as “super users.” That created the perception of a data VIP list.

“This was a mistake,” associate commissioner Jeffrey Hill later said. There’s no super user list, apparently. The staffer was attempting to “expedite a response.”

The figure above illustrates the disparity the BLS was trying to explain. That’s the OER-rent spread.

The BLS offered an in-depth explanation for the OER overshoot. Suffice to say some questions were left unanswered. Another BLS official — Assistant Commissioner Rob Cage — summed it up in layman’s terms: “You can expect some volatility” in the OER measure going forward.

I don’t know if that means the Fed’ll have to “look through” a key component of shelter inflation in 2024, but I do know the Fed was banking on shelter disinflation. If that assumption proves misguided for any reason (e.g., due to statistical “volatility” or the simple fact that all kinds of housing remains unaffordable for many Americans), it’ll present Jerome Powell with a communications challenge regarding the rate cuts he’s inclined to deliver.

Economists expect to hear core prices rose 0.3% in February from January when the BLS releases its latest batch of indecipherable figures on Tuesday. That’d be a deceleration from the prior month’s 0.4% pace, which unnerved markets.

The YoY rate’s seen at 3.7%, the coolest since April of 2021, when inflation took off in the US.

Needless to say, nobody wants a repeat of the last CPI release. Another report or two like January’s, regardless of culprit, would cast considerable doubt on the relative wisdom of rate cuts in 2024.

Powell insisted last week that the Fed “stays the heck out of politics.” I won’t blame you for emitting a wry chuckle, nor would I blame the Fed if they dabbled in politics this election cycle. (Gasp!) After all, this is a Fed (and specifically a Fed Chair) subjected to merciless public ridicule under America’s last president, who had no qualms whatsoever about commandeering monetary policy in the style of Recep Tayyip Erdogan. (To be fair: Joe Biden last week waded into monetary policy, saying he expects cuts, but “expects” means something different when it comes from Biden versus when it came from Trump.)

The problem with sticky inflation in H1 is that it pushes rate cuts into H2, which is to say pushes them closer to the election. I’m not sure it matters in terms of actual economic developments. A rate cut in July or September isn’t going to manifest in an immediate economic bonanza that bolsters Joe Biden’s reelection odds, even if rate cuts at those two meetings might bolster stock prices. That said, it matters a lot for perception. The optics of cuts in close proximity to the election would invariably prompt allegations of politicization and underscore, to Trump’s supporters, the notion that the entire US government is conspiring against their messiah figure.

Anyway, the sooner inflation moderates the better. The near-term concern for Powell is that he used his congressional testimony last week to express faith in the notion that the disinflation process is intact. Implicit was the idea that January’s CPI overshoot was a blip. The Fed, he said, is “not far” from having the confidence they need to cut rates. That confidence would diminish in the event data for February and March doesn’t cooperate.

The figure below, from BMO’s Ian Lyngen and Vail Hartman, shows you the path of YoY core CPI under different scenarios for the MoM prints.

The red line assumes MoM readings consistent with the average print during the back half of 2023. In that case, core price growth would trough in May at 3.3% and drift higher to 3.5% by August. In order for that upward drift not to occur, the MoM readings on the core gauge need to be 0.2% or below.

Lyngen offered some context for the rate cut discussion. For the Fed, cutting rates from 5.50% to 4.75% “wouldn’t represent an ease” and it wouldn’t be an admission that the Fed made a mistake. On the contrary, it’d be a “victory lap,” as Lyngen put it. “As long as realized inflation resumes its prior trend to levels more consistent with the Committee’s objectives, then edging rates lower as 2024 unfolds will not only be the path of least resistance, but it will also provide Powell an opportunity to double-down on the no-landing narrative,” he wrote. Of course, a lot hinges on the neutral rate debate. I discussed that at length in the latest Weekly.

In addition to CPI, traders will get a fresh read on retail sales in the US. Economists expect a meaningful pickup. Nominal spending decelerated sharply in January, and markets are keen on any evidence that the consumer is tiring. Although the jobs report showed the pace of hiring remains robust, weakness under the hood arguably suggested labor market normalization actually accelerated last month. The JOLTS release was amenable to the same interpretation: The headline job openings figure constituted an overshoot, but the quit rate fell to the lowest since August of 2020. (I still think the JOLTS miracle has mostly run its course.)

Also on deck in the US: The New York Fed’s monthly consumer survey, PPI and the preliminary read on University of Michigan sentiment for March. The Fed’s in the quiet period before the March FOMC meeting. Overseas, the UK will release wage and GDP figures.