NORGES BANK: Little Reaction In NOK FX To Hawkish Leaning Wolden Bache Speech

Likely to be the single most closely watched individual aspect of Wednesday’s CPI report, rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December. This of course follows the surprisingly sharp moderation to a weighted average of 0.23% M/M in November, the first month this cycle that monthly rental inflation has been below its pre-pandemic average of 0.27% (it last tied with this 0.27% increase back in June before surprisingly surging to 0.47% M/M in Aug). 

• This previous moderation was significant. Housing has previously appeared to us to be the main stumbling block in the return to the inflation target. With the labor market increasingly looking like it won’t be a source of inflationary pressure in the near-term (even more so after productivity revisions), supercore inflation should start to take less precedence.
• However, the housing inflation data are volatile month-to-month, not least because of methodological quirks such as sample rotation, and its hard to read too much into any single month. Some analysts point to seasonal factors flattering SA housing inflation compared to the NSA version.
• A further soft (~0.2% M/M) reading would be a notably dovish outcome in our view. 

Watching Core Goods After Recent Rare Strength Prior To Potential Tariffs

• If housing is our top pick to watch this month then core goods inflation is closely second. It’s amidst heavy focus on potential tariffs under the second Trump administration but also with a further near-term dampening factor from continued US dollar appreciation.
• Analysts look for core goods inflation between 0.2-0.3% M/M after it accelerated to 0.31% M/M in Nov for a 19-month high. That was the third consecutive monthly increase in core goods prices after sequential deflation in 14 of the previous 15 months.
• The breadth here will be important as well, including what happens to new vehicle prices after rare strength in Nov (0.6% M/M was strongest since Oct 2022) and apparel after a tepid bounce in November.
• The NY Fed’s GSCPI doesn’t point to any notable additional reacceleration in supply-driven price pressures. 

MNI's table of analyst CPI sub-category expectations for December is below (our full CPI preview is here, PDF). In general, December's report (Wednesday, 0830ET) is expected to see reversals of November's moves from a sequential perspective. Key categories:

• Rents (+ve): Both owners’ equivalent rent and primary rental inflation is seen firming on the month after a notable miss back in November. We see average estimates for OER of 0.33% (range 0.28-0.39) and primary rents at 0.29% (range 0.24-0.32). See more on this below.
• Airfares (+ve): Airfares are seen increasing circa 1.0% M/M for an acceleration from the 0.4% M/M in Nov. These are small moves compared to some of the recent swings seen in this volatile component. (Outside of CPI, the 7% NSA increase in PPI airfares will boost core PCE tracking.)
• Lodging away from home (-ve): Lodging inflation is seen slowing sharply after the far stronger than expected 3.2% in Nov, in what was its strongest monthly print since Oct 2022 and one that added 0.05pp to core CPI inflation.
• Used cars (-ve): Seen unlikely to match November’s surprisingly strong 2% increase, with estimates we’ve seen averaging 0.6% M/M (between 0-1%). The CPI series has mostly caught up with prior relative strength in Manheim auction data.
• Non-core: Energy (+ve): Energy prices seen driving the monthly acceleration in headline inflation, estimated to rise circa 2-3% owing to a push higher in gasoline prices. The recent surge in natural gas prices comes too late to impact this month’s data.
• Food (neutral): Expected to maintain its recent acceleration to a 0.4% M/M clip, with food-at-home inflation overtaking the more service-focused food-away-from category on average through Sep-Nov. As always, we also keep an eye on food-away-from-home, a component that feeds into core PCE but not CPI. 

• Stocks retreat from this morning's post-PPI data highs, extending modestly lower ahead midday with Health Care and Communication Services sectors underperforming.
• Stocks and Treasury futures enjoyed a brief knee-jerk rally after this morning's PPI inflation measures for December came out lower than expected. Risk retreated as further investigation into the data showed PCE components were on the soft side with the notable exception of airfares, which typically jump in December.
• Currently, the DJIA trades down 89.09 points (-0.21%) at 42205.84, S&P E-Minis down 20.25 points (-0.34%) at 5853.5, Nasdaq down 92.7 points (-0.5%) at 18994.25.
• Pharmaceuticals weighed on the Health Care sector in the first half: Eli Lilly -7.21% after phase 1 trials of it's weight loss drug were terminated, Charles River Labs -5.72%, Regeneron Pharmaceuticals -2.64%.
• Interactive media and entertainment shares weighed on the Communication Services sector: Meta -2.60% amid reports of staff reductions of lowest 5% performers, Paramount Global -1.21%, Netflix -1.04%.
• On the positive side, Utilities and Materials sectors outperformed in the first half. Independent power and electricity providers rebounded after Monday's selling: Vistra +4.91%, Constellation Energy +3.09%, NRG Energy +2.42%. Chemicals continued to support the Materials sector for the second day running: Celanese +5.11%, Eastman +2.09%, Air Products & Chemicals +1.65%.
• Reminder, the next round of quarterly earnings kicks off this week with Blackrock, Bank of NY Melon, Wells Fargo, JP Morgan, Goldman Sachs, Citigroup, US Bancorp, M&T Bank and PNC all reporting between January 15-16.