I'd expected that inflation was coming back for a second bite in January, but Eurozone's Jan CPI was far worse than even I had expected. Headline CPI up 5.1% yoy, with a monthly rise 3.3SDs above historic trends. Energy alone was up 6% mom and 28.6% yoy, but in addition, F&B was up 1.1% mom and 3.6% yoy. Energy and food - even if energy prices calm down, food inflation will stay with us, thanks to the longer-term impact of the jump in fertilizer prices. Strip energy and food out, and core CPI was up 2.3% yoy, but with a monthly movt 2.3SDs above historic seasonal trends.
The big problem is that January was the month when the Eurozone base of comparison turned friendly: Jan 2021's monthly rise was no less than 4.1SDs above trend, mainly because of the sharp and encouraged rise in CO2 emission prices. So Jan 2022 ought to have offered relief. That it didn't means we've got to raise likely yoy rates for the rest of the year. The revision is sharp too, pushing the likely yoy up by around 1pp for the whole of the year. That means its now reasonable to expect 1Q CPI to average 5.3%, 2Q 5.8%, 3Q 5.9% and 4Q 5.2%. Core CPI, meanwhile, will can be expected to rise above 3% for most of the year, starting in March.
Meanwhile, yesterday 10yr yields were at 0.04%.
It's very hard to see how the ECB can keep the pedal to the metal when you've got this scale of inflation.
Over in the US, I follow heavy truck sales as a good leading indicator - at least for recession. January's sales were extremely encouraging : not only were Jan's sales up 13.1% mom to the highest monthly total since Sept 2019, but in addition, sales numbers were revised up very sharply - by 27% no less from what was initially claimed. A rebound on this scale over the last two months removes what had been a worrying recession signal.
By contrast, the 301k fall in Jan's ADP's private payrolls count looks, on the face of it, grim. But for the time being, I'm suspending judgement. Why? First, remember that in Dec we had a 776k rise. That was exceptionally strong, and the pullback in Jan still leaves jobs up 475k over the last two months - and that's a very strong number indeed, comparing with 273k averaged in this period over the last five years. Second, more than half the fall came from leisure and hospitality - down 154k, which is hardly surprising given that a) holiday season is over and b) omicron is with us.
