After First Big Downward Adjustments In Late 2022

One Step Forward, Two Steps Backward For Inflation: Data Starts To Look More Erratic


Santander Corporate & Investment | There are no di­vi­sions here, in­fla­tion data are un­doub­tedly star­ting to look more erratic after the first big down­ward ad­just­ments at the end of 2022, falls that raised hopes of a pi­votal mo­ment for cen­tral banks and ex­plained a large part of the un­pre­ce­dented January rally in the mar­kets.

Base effects will be the main ally for much of 2023, but our economists believe that in the short term we will not see major declines yet.

Moreover, they warn about how sticky some of the inflation is (and possible contagion), especially in housing and services. And they do not believe that yesterday’s January US data, still in line with expectations (0.5% m/m vs 0.5%e), will change the Fed’s flight plan.

In fact, the market yesterday moved very fast discounting a terminal rate already close to 5.5% in July (5.25% expected by our economists), while the anticipated fed funds’ 2H23 pre-payrolls declines have already disappeared.

Something that also pushed the European market, especially after Makhlouf’s comments pointing to a terminal rate of 3.5% (Santander 3.25%e).

Spain: Inflation Up To 5.9% In January, Core Inflation Soars To 7.5%

2023 has started with a new jump in the CPI, to 5.9%, after the decline that started in July last year from a record high of 10.8%. Clothing and transport lead the rise this month. And, although food is down slightly, some groups, such as fish, are starting to pick up again in the monthly statistics.

Core inflation continues to soar, rising above the headline CPI for the first time in December and now stands at 7.5%. This is almost three times the average wage increase that ended the year at 2.81 %.

“In Spain we have become poorer and we continue to get poorer month by month. All international statistics place our country at the bottom in terms of income loss. In fact, the OECD highlights that, in contrast to a slight general recovery, Spain has lost almost 8 % of purchasing power”, explains Joaquín Pérez, secretary general of the USO trade union.

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