January CPI reading just came at 6.4% yoy growth, slightly more than with the estimate of 6.3%

The Consumer Price Index for consumers rose 0.5 % in January on a seasonally adjusted basis, after increasing 0.1% in December. the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 6.4% before seasonal adjustment. Here is the breakdown of contributors (Chart 1). CPI is expected to show prices rose 6.3% over the prior year, according to estimates from Bloomberg. The S&P 500 futures is now up down 0.33% on the inflation news.

The index for shelter was by far the largest contributor to the monthly all items increase, accounting for nearly half of the monthly all items increase, with the indexes for food, gasoline, and natural gas also contributing. The food index increased 0.5% over the month with the food at home index rising 0.4%. The energy index increased 2.0% over the month as all major energy component indexes rose over the month.

Chart 1 CPI YoY change

Markets are now pricing in a 90% chance that the Federal Reserve will hike interest rates by only 25 basis points in March (Chart 2), lifting the equity markets, especially the growth stocks.

Chart 2 Target rate probability for Mar 22, 2023 meeting

When the inflation data is not as hot, the quality growth stocks will be the beneficiaries, especially technology stocks. The undervalued technology stocks provides investors great opportunities to capture high-quality growth stocks set to rebound and outperform the market.