As the U.S. stock market is experiencing a comprehensive sell-off, the January CPI data to be released on Friday faces the risk of exceeding expectations. Wall Street generally expects the core CPI month-on-month to rise from 0.2% to 0.3%, while several investment banks warn that the actual reading may be higher, with the probability of a &#34;hawkish surprise&#34; greater than that of a &#34;dovish surprise,&#34; which could bring a new round of shocks to the fragile market.
At 21:30 Beijing time tonight, the January CPI data, delayed for several days due to government shutdowns, will be released. Wall Street consensus expectations show:
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CPI is expected to rise 0.3% month-on-month, unchanged from December, and year-on-year to drop from 2.7% to 2.5%.
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Core CPI is expected to rise from 0.2% in December last year to 0.3% month-on-month, and year-on-year to drop from 2.6% to 2.5%.
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However, this expectation may underestimate the impact of early-year price pressures and seasonal distortions. Several institutions have more hawkish forecasts, with JPMorgan expecting core CPI to increase by 0.4% month-on-month, believing that early-year price pressures will push up January CPI, while the data from December last year was suppressed due to the lagging effects of the federal government shutdown in October and early November.
This week, market sentiment has clearly shifted to a defensive stance. Concerns about artificial intelligence disrupting business models across multiple industries have spread, coupled with the largest decline in U.S. existing home sales in four years, triggering risk-off trades, with investors simultaneously selling stocks, commodities, and cryptocurrencies. In this context, the marginal changes in CPI are magnified. Given the weaker-than-expected retail sales data and stronger-than-expected non-farm payroll report offsetting each other, the upcoming CPI data is particularly important.
<h2>Multiple Factors Indicate Upside Risks</h2>
JPMorgan's chief economist Michael Feroli expects the January CPI to rise by 0.3% month-on-month (more precisely 0.35%), and core CPI to rise by 0.4% month-on-month (more precisely 0.39%). This forecast is above the market consensus, primarily based on early-year price pressures and significant residual seasonal factors in the CPI data.
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Feroli points out that the CPI reading for December last year is often one of the lowest levels of the year, partly influenced by the lingering effects of the federal government shutdown from October to early November last year. Historical data shows that weak December readings are often followed by stronger January readings, and the significant seasonal distortions between December and January are not irrelevant. He reminds investors not to overinterpret the signals of inflation slowing from the December report.
JPMorgan also emphasizes potential drivers for inflation to accelerate again in the future. Considering that tariff-related costs will be passed on to consumers this year, as well as the potential transmission effects of the U.S. dollar's trade-weighted index continuing to weaken over the past year, the bank expects inflation to re-accelerate for some time.
JP Morgan's trading desk believes that the likelihood of hawkish data is greater than that of moderate data. Recently, the interest rate market has shown a bullish flattening trend, reflecting market expectations that macro data will weaken, with investors increasing duration allocation ahead of the next batch of risk events. Additionally, the steepening of the curve was previously a consensus trade, and some unwinding in a more uncertain macro data environment is understandable.
<h2>Sub-item data hides pressure</h2>
In terms of energy, JP Morgan expects energy prices to decline slightly, but the drop in gasoline and fuel prices will largely be offset by the surge in electricity and residential natural gas prices. January weather was initially above average temperatures, but a winter storm swept across much of the United States at the end of the month, causing a sharp drop in temperatures. Food prices are expected to remain moderately firm, although the increase will be lower than the strong growth seen in December.
Housing-related prices are expected to remain firm. Owners' equivalent rent and tenant rent will be close to the levels reported in December, with month-on-month growth maintaining around 0.3%, slightly lower than the same period last year. Although these rent inflation indicators are expected to gradually cool down this year, it will be a gradual process, with the year-on-year rent inflation rate still maintaining around 3% at the beginning of the year. After a significant surge in December, prices for accommodations are expected to see some degree of pullback in January but will remain firm (0.6%).
Goldman Sachs emphasized five key sub-item trends:
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First, seasonal distortions will bring upward pressure on the communication category (Goldman Sachs forecasts +0.4%) and the private transportation category (+1.5%). Second, the price reset of categories such as healthcare goods at the beginning of the year will provide a moderate boost (Goldman Sachs forecasts +0.7%).
Third, tariffs will create upward pressure on particularly sensitive categories, expected to raise the core inflation rate by 0.07 percentage points in January. Goldman Sachs believes tariffs will push up prices for clothing (+0.5%), entertainment (+0.4%), education (+0.2%), household goods (+0.7%), and personal care (+0.2%).
Fourth, travel service inflation remains firm. Based on signals from alternative price data, airfares are expected to rise by 2%, and hotel prices are expected to rise by 1%. The increase in airfare reflects a moderate boost from seasonal distortions and a modest increase in base fares shown by online price data.
Fifth, auto inflation is relatively weak. Based on signals from used car auction prices, used car prices are expected to decline by 1.5%; new car prices are flat, with tariff pressures offset by incentives for new car sales; auto insurance categories are expected to rise moderately (+0.4%), reflecting premium growth shown by online datasets.
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<h2>The market is prepared for volatility</h2>
JP Morgan has developed a market reaction matrix for different core CPI month-on-month readings.
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If the core CPI month-on-month is above 0.45%, the S&amp;P 500 is expected to decline by 1.25%-2.5%, but the probability of this scenario occurring is only 5%.
If the reading is between 0.40%-0.45%, the S&amp;P 500 is expected to rise by 0.25% to decline by 0.75%, with a probability of 25%.
**If the core CPI month-on-month is between 0.35%-0.40%, the S&amp;P 500 is expected to rise by 0.25%-0.75%, with this scenario having the highest probability at 42.5%
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If the reading is between 0.30% and 0.35%, the S&amp;P 500 index is expected to rise by 1% to 1.5%, with a probability of 22.5%.
If the reading is below 0.30%, the S&amp;P 500 index is expected to rise by 1.25% to 1.75%, but the probability is also only 5%.
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The options straddle indicates that the market is pricing in a volatility of about 1.1% after the data is released on Friday.
JP Morgan's trading desk stated that although the likelihood of hawkish data is greater, they do not believe the market will react as strongly as it would to stagflationary data— the latter typically manifests as a sell-off in cyclical stocks and consumer staples

Wall Street generally expects the core CPI month-on-month to rise from 0.2% to 0.3%, while several investment banks warn that the actual reading may be higher. Based on price pressures at the beginning of the year and residual seasonal factors, JP Morgan expects the core CPI to increase by 0.4%, with the probability of a "hawkish surprise" being greater than that of a "dovish surprise." In the context of weaker-than-expected retail sales data and stronger-than-expected non-farm payroll reports offsetting each other, the upcoming CPI data is particularly important

- U.S. stock markets face a comprehensive sell-off as the January CPI data, to be released on Friday, presents higher-than-expected risks.  
- Wall Street expects core CPI to rise from 0.2% to 0.3%, with some banks predicting an even sharper increase, potentially impacting the already fragile market.  
- J.P. Morgan predicts inflation may accelerate due to seasonal distortions and tariff-related pressures, preparing the market for volatility following the CPI announcement.

As the US stock market remains fragile, tonight's CPI may present a "hawkish surprise."