US-JAPAN: Trump-Takaichi Bilateral Meeting Underway Shortly

• Update, over 95,700 SFRZ6 98.00 calls, 7.5 (+70k Fri at 4.0)
• +48,000 0QZ6 98.00 calls, 7.5
• -10,000 0QH6 96.81 puts, 2.0 ref 96.955 earlier

Disinflationary progress was seen across several core CPI categories in January. Some of this is mechanical related to lower mortgage interest costs and the overall level of services ex-shelter inflation remains a little too high for comfort, but this is offset on aggregate by softer goods price inflation.

• The biggest driver of disinflation once again was shelter costs: they rose by 1.7% Y/Y vs 2.1% prior and the first sub-2.0% reading since February 2021. Disinflation was recorded across major shelter sub-categories with owned (1.0%, 1.3% prior) and rented (4.3%, 4.8% prior) accommodation decelerating as well as water, fuel, and electricity (-0.1%, 0.3% prior).
• The deceleration in mortgage costs is of course a key component (1.2%, 1.7% prior) as the lagged effects of BOC cuts comes into play, but this deceleration began in September 2023. Ex-mortgage interest inflation decelerated to 2.3% from 2.4%. Trim services ex-shelter prices came in at 3.1% Y/Y (3.2% prior) while ex-shelter inflation printed 2.5% Y/Y for a 2nd month.
• Services inflation picked up to a 9-month high 3.4% from 3.3% prior, but this was related to higher Y/Y restaurant prices.
• Indeed looking at the higher food inflation print (7.3% Y/Y, 6.2% prior), this was entirely driven by higher restaurant/takeout prices which were all in double-digits reflecting year-before tax holiday base effects. But grocery prices (11% of the overall CPI basket) actually decelerated after 2 months of acceleration, to 4.8% Y/Y after 5.0%. The BOC's been concerned about surging grocery prices on higher import costs so this may help alleviate concerns for one month at least.
• StatCan pointed out a sharp deceleration in cellular services (4.9% Y/Y vs 14.6% prior) "due to a base-year effect, following six consecutive months of upward pressure" while we also note a solid pullback in the household operations/furnishings/equipment category (13% of CPI) to 2.5% (3.6% prior).
• Goods price inflation printed 0.9% Y/Y, down from 1.2% prior for a joint 2-month low. This included a steady durable goods reading (2.0% after 1.9%, which had been the lowest since April), a 1.3% Y/Y semidurables print for a 2nd consecutive month, and 0.3% nondurables for a 5-month low (0.8% prior). Overall, trade-disruption related price pressures appeared tame.
• Apparel prices (4% of CPI) stayed soft (0.8% Y/Y after 0.5%), with transportation (-17% of CPI) hitting the lowest since April 2025 at -1.7% (after -0.5%), and airfares/travel services were softer.

Chicago Fed’s Goolsbee ('27 voter, generally dovish but dissented hawkishly at Dec FOMC) spoke on CNBC in which he unsurprisingly reiterated his post-CPI comments from Friday that the January report had some encouraging bits but also some concerns, with still pretty high services inflation. 

• He again warned that services inflation remains elevated but if price hikes linked to tariffs are a one-off, it could allow policymakers room to move.
• “I do think that if this proves to be transitory, and we can show that we’re on path back to 2% inflation, I still think there’s several more rate cuts that can happen in 2026, but we’ve got to see it”.
• Monetary policy may not be that restrictive if inflation is steady around 3%, he said. "If inflation runs persistently high, we're loosening -- we're being looser than we otherwise would. That's why I say I want some evidence we're headed back to 2% and then I think rates can keep coming down”.
• The January CPI report showed further disinflation in shelter prices, but services inflation is "not tame" and core came in at a 3.6% annualized M/M rate, he said. "So far I think we've been basically stalled out around 3% with some positive signs but also some warning signs," he said. "I want to get more information."
• Returning to Friday’s remarks, recall that he still thought it would have been wiser to wait rather than cut in December but had repeated that he still thinks interest rates can still go down a fair bit more.