US CPI Comes in Lower Than Expected

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It's a brilliant report with lots of charts. I don't want to go narrow here I want to go more like 60,000 feet. Are we through the pandemic? Are we through the shutdown when we look at price change in America? I think we're still in the process of normalize normalization on the price of single shortings with the pandemic as well I still think there's a debris there For sure and then I think the biggest effect is really psychological not only on the half of businesses But also on consumers that are willing to tolerate, you know high inflation I mean because we know that shelter has always been a big a big part a big component right takes up more percentage I think of that CPI than any other category Month over month. I guess it's I guess it's trending lower But tell that to somebody who's actually trying to buy something or rent something right now, right? Well, this is the classic divergence between what economists look at and what people on Main Street actually care about So the truth is is that shelter inflation is coming down It's coming down pretty quickly and it's coming down pretty quickly because home prices Lead the CPI's measure of shelter costs by about 16 months So the question ultimately we need to answer is where a home price is going and they are a week and we're expecting that they're going to come down national I got everybody try telling me this is not a big deal report I don't buy it and particularly with a backdrop with chairman Paul right now the fact is I have people like you who were two three four rate cuts Going wait a minute, maybe not are you pulling back The rate reduction scenario that you see because of a set of inflation data We're essentially moving back our rate cut expectations. So January they're likely not going to cut unless this CPI Shifting it out correct, okay, unless the CPI report is extremely soft, which we're not expecting So are you still looking? I saw on your note, but unless your note was a little bit old just by hours because of the way things move so quickly Are you still looking at three rate cuts? You're just for shade on our guest I mean, no But things do we have lightning speed for this we know. Yeah, geez. It's a little shady in here this morning, huh? No, no, so we are looking for three rate cuts still We see the economy slowing particularly in the labor market and we also see inflation coming down and that's going to work Yeah, but it's shifting to 27 like JP Morgan. No No, you really think we're going to see it now three cuts this year No, I look at is myron one six rate cuts if he gets four is a genius because he's so alone on this call Are you are you at the edge of myron? No, we're not looking for four. We're looking for three We think with this new fed share coming in combined with the fact that the regional Fedbank rotation is comparatively dovish to last year's Fedbank rotation that that might be enough to shift the calculus in in terms of three rate the ten year inflation Adjusted yield is a wonderful trend-based barometer. It's in a very tight collar if you will it comes in two bases points 1.8 3.6 three percent a dampening of yields abandoned to bills notes and bonds and is Lisa mentioned green on the screen here as well try luck here with us who has there's like 47 Lines of David Rosenberg inflation data. You haven't had time to look at them I'm not looking for that But is there color here that you can give of pretty much a wrote idea except of course CPI a little more damp Yeah, a bit surprised here that it's core CPI which misses expectations here at 0.2% Considering the fact that gasoline prices were down nearly 5% on a month over a month basis You would expect that it was headline that would be weak But the fact that core is actually a bit softer is is a profoundly strong signal at least to us that Inflation is coming down inflationary pressures are dissipating and the Fed is going to be cutting this here Lexus asked a brilliant question earlier about tariff dynamics. Let's combine that with the export of Chinese deflation Is that an untold story for 2026 of a dampening price change in America because of the realities Beijing faces a hundred percent And it's funny because if you look at the two most tariff sensitive components of CPI you look at household appliances And you look at a peril the year-over-year rates of change in these prices 0.5% We're looking for tariff inflation really struggling to find it I'm looking at this report right now breaking it down food up 7/10 of a percent in December So we're still not getting a break there right where Americans are still paying more for the basics and energy Increasing 3/10 of a percent in December so so again. We're finding that there are these areas of sticky inflation And no reason to believe they're going to come down any time soon Troy Well on the energy side of things what I would add is that that's likely a Reflection of electricity prices going higher on the back of higher natural gas prices now It's hard to disentangle how much of this is just a simple commodity effect versus something that is more related to the AI theme But that is something that we've we've been worried about for about a year now I mean the reality is there these little things that people think you mentioned electricity rates I you know I go to the internet like everybody else and I'm sorry up 8% up 10% Elisa just emailed me we have a whole internal email system folks that we took from the U.S. military and Elisa emails me and says Tom what's inflation and DoorDash Grabab and seamless and the answer is ginormous. I mean how far apart are fancy people like you from the public? Uninflation There is for sure a k-shaped economy and that applies not only to spending but also in terms of rates of inflation But this is something that we discussed really in depth in our our year ahead outlook Which is that the household net worth of the top 1% is up 18% Since the fed started hiking rates for the bottom 50% it's like 8% So you're really seeing this divergence of fortunes between we'll say the middle classes and then those at the very tipy top try. Thank you so much. Try lucky with the senior U.S. economist s mbc and ego securities Stay with us more from Bloomberg surveillance coming up after this Today's markets move fast get the insights you need in 10 minutes with the Barclay's brief a new podcast from Barclay's investment bank through sharp dialogue and scenario-based analysis our leading experts analyze key market themes each week So whether you're managing a portfolio or leading a business the Barclay's brief podcast can help you make smarter decisions today Stay sharp state briefed find Barclay's brief wherever you get your podcasts This is Scarlett Foo and up all swiney inviting you to join us for the Bloomberg intelligence podcast every day We harness the power of Bloomberg intelligence to bring you deep dives into the companies that are moving markets from publicly traded companies Like Apple to those that are privately owned but known by everyone on earth like open AI now I help to build Bloomberg intelligence to what it is today Scarlett and now our analysts are the best in the world Covering more than 2000 global companies that is your legacy Paul and we speak to those in house experts every day They are Bloomberg's go-to authorities on sectors companies and legal processes. We do it all live each week day Then bring you the best conversations in our daily podcast So be sure to search for Bloomberg intelligence on YouTube apple Spotify or anywhere else you listen Listen in the afternoons on your way home from work to catch up on the market news you missed during the business day That is the Bloomberg intelligence podcast. I'm Scarlett Foo and I'll Paul Swiney subscribe today wherever you get your podcast You're listening to the Bloomberg surveillance podcast catch us live weekday afternoons from seven to 10 a.m. Eastern Listen on Apple CarPlay and Android Auto with the Bloomberg business app or watch us live on YouTube Holding court in the United Kingdom for ages Leslie Vingemery just just was fabulous on international Relations like the Chicago Cubs picked up Alex Breggman from the Red Sox. Yep, the Chicago Council and global affairs picked up Vingemery From Tottenham or something like Leslie how about Chicago hard snow Tom arson always how's that window? Well, I know that you know We were smoking cigars at that fancy hotel in the grove again, you know Leslie's going arson I'm going to talk to him. How about those Chicago winters Leslie Vingemery? You know mild so far Too pretty frigid week weekends. I happen to be in London and one in New York and the other but Chicago is fabulous I mean talk about a beautiful it looks great when it's on the ground Tom So it's absolutely stunning surrounding Lake Michigan and Millennium Park I mean, there's nothing nothing like it. It's it's really something you should come my basic take on our international relations Is it's all wonderful until something breaks? How close in our multi-front Trump foreign policy are we to something breaking? I Mean it's it it definitely feels like it's on the edge the return Early in the New Year. I think was it was boy talk about Taking off with speed the you know the capture of Madura and Quickly pivoting to making claims on Greenland and then you know Iran of its own accord people on the streets and and Trump contemplating what his options are It really is extraordinary and that's even setting aside the domestic story You know, I think that You know international relations hasn't always been easy. It's been very difficult the last one year There's so many questions about the United States, but I think nobody could have predicted that this was going to become so much About preeminence in the Western hemisphere about pushing Territorial borders whether it's through threats or actual use of force Taking leaders out, you know, we thought this would be a president who might be neo-isolationist who might be You know inclined towards restraint. That is just not what we're seeing right now with the major exception of you know China US policy towards China and Russia exactly where we thought you know It might be much tougher at least when it comes to China and that again, that's not what we've seen And Leslie and to throw into the mix now we're ratcheting things up against Iran, right with the president now Saying he wants to impose 25% tariffs on any country doing business with Iran What are the the implications there as that country now sees its biggest anti-government protests and years and and killing of many civilians? Yeah, well, I mean the Iran story is an extraordinary one devastating for the Presumably thousands of people who are at risk or have been targeted by the regime And I you know, I think president Trump is weighing his options. You're right those 25% you know he's cracking down on on secondary Science violation of sanctions basically and and that hits of course China and others that he's been you know lighter touch with But but relative to the other options that the US could be considering that is you know perhaps a first step the real question is whether there will be any use of military force it obviously a much harder more risky Lift I'm skeptical at the moment, but Trump today is meeting to consider his options It could be that we just continue to see cracking down on you know, these these sanctions as you've mentioned is As sort of the and wait and see what happens internally good morning Chicago good morning across America Leslie Vinger Murray With this here we continue where they're less so your hallmark is to always bring in academics you bring in from Minnesota Professor Faisal Tanisha Faisal and just say she has written the absolute best on Autocratic States. How on a critic is the United States of America? Look the United States of America is not autocratic. We have a leader With autocratic tendency who likes to you know play fast and loose with the rule of law who doesn't really feel like he should be constrained by Congress the courts norms Standard ways of doing things convention And this is the year of the people Tom. This is the year when Americans are you know making choices about whether they're going to kind of stand up and hold the line and we've just seen a bunch of past Leaders of the Fed decide that they are going to stand up and And you know, we saw a couple of senators Republican senators flip over to the other side and and vote for you know The president to be required to report to Congress if they wish to do more in Venezuela So we're seeing a few hints This year early days that we didn't see last year and we have you know, it's a long ways out. So we have the midterms coming so there are You know, there are some signs that there's going to be a little bit more pushback We don't live in an autocracy. We live in a you know very dysfunctional democracy, but still a very robust democracy With a leader who you know by all by all accounts wants to make some changes some of his instincts are very good But he doesn't want to do it through the processes that you know, we've come to think are you know not necessarily efficient But that are important right and Trump certainly is is unbound and undeterred by precedent. So what happens with Little Greenland in 2026 Leslie You know, I'm I'm kind of concerned on this one that I mean a couple of things obviously Europeans are right rightfully up in arms. They are really talking to each other They're completely unsettled by the president's willingness to threaten the use of force to to argue that he can get it Just you know with money and language It sort of doesn't matter whether he actually uses force in one sense, which is he's already completely unsettled The most important norm that has guided the system at least since 1945 Article two chapter four of the UN Charter, you know, you don't use force to unsettle Territorial boundaries. It's a sovereignty norm But here's the rub if you look at the data most Greenlanders would prefer to be independent than to be Ruled by Denmark and this is I think where the administration is going to play its hand. It's going to push that division internally It's going to you know, we've already seen there've been trips by the administration meeting with those leaders of the independence movement I think that's Going to continue and you can see a scenario where Greenland is given the opportunity the voice its preferences and it wishes to have an independence And as we know Greenland can't really survive as an independent country. It's 57,000 people. It isn't a you know part of the world Where it's more security. So I think this one is definitely a live Option and want something to watch and it's going to really rupture relations between the US and Europe Less I got 20 seconds comes your white socks. You move into Chicago. I mean you're five miles south of Wrigley Field You've got the rock star location on Randolph Street You make the easy slide to Wrigley Field or do you vote for those lowly support those lowly Chicago white socks? You know Tom always follow the pope. That's not like we follow the pope and my daughter and and then and there you have the op But I don't choose I can't choose. I am independent. Oh, you're very independent. I can see that Pope Merch on the way in let's Evidence Marie. Thank you so much. We really have been way too long in Chicago greatly appreciate let's Evidence Marie with us stay with us more from Bloomberg surveillance coming up after this I'm Matt Miller and I'm Hannah Elliott inviting you to join us for the Bloomberg hot pursuit podcast every week We bring you news and industry insight on everything cars and we do a whole lot more than just talk about cars Matt We actually get behind the wheel of basically every latest model especially the luxury ones on the sports cars Direct from the showroom floor. It really is remarkable how many cars we have access to I feel a little bit guilty about it But everything from $40,000 EVs to exotic half million dollar supercars We also speak with the insiders who shape the automotive industry from the top CEOs and collectors to visionary designers and racing champions search for Bloomberg hot pursuit on YouTube Apple Spotify or wherever you get your podcasts Maybe you listen while you're on your weekend drive maybe go into cars and coffee listen to us talk about what we are driving this week That's Bloomberg hot pursuit. I'm Matt Miller in New York and I'm Hannah Elliott in Los Angeles subscribe today wherever you get your podcasts You're listening to the Bloomberg surveillance podcast catch us live weekday afternoons from 7 to 10 a.m. Eastern Listen on Apple CarPlay and Android Auto with the Bloomberg business app or watch us live on YouTube I wanted to get some perspective on this moment for chairman Powell for the Federal Reserve system and as we saw with the letter last night led by Lagarde and Bailey central bankers around the world No one is better qualified than Richard Portis He is at London Business School, but that barely describes his contribution to thinking about global and transatlantic economics Back to his time as a road scholar long ago and far away to Yale professor honor to have you with us this morning I mentioned McCabe to McKesney Martin in 1951 is this moment is seismic is 1951 Potentially quite yes, absolutely. This is a major major attack Not just on a man of unparalleled integrity in his post, but also on the institution on the Fed itself and the Independence of the Fed is many people say, oh, you know, let's not stress this too much I mean, maybe the Fed is too independent. We really ought to three think the mandate so on and so forth. Yes, yes, it's worth having a reflection on all that But but this is something quite different. This is where the president of the United States through his minions is seeking to take control of monetary policy and that Whatever you think about what the Fed has done might do in future pressures as other that is unacceptable the key question for me professor Portis is okay. We're here And based on what we've seen the last X number of years of president Trump. He may get his way, etc Is it repairable? Is your study across your exceptional career? Is your study that the system and the American system can repair hurt and harm by one person I think That is a that's a very very good question because it goes to the heart of What we mean by trust by reputation and how those qualities can be squandered and once reputation and trust are imperiled are damaged. They're very very hard to repair So if the president were to have his way Then down the road you would see I think a real deterioration in the In the way that monetary policy is running in the United States and that has been implications for us over here For outside the United States because of the effects of fed policy on money markets throughout the world Now professor. I was looking at this unprecedented letter from from the ECB And I just want to read a portion of it here. It says we stand in full solidarity with the federal reserve system And it's chair Jerome Powell They go on to say that Powell has served with integrity focused on his mandate and an unwavering commitment to the public interest I wonder if this letter at all Well, do you think it will sway president Trump to pull back a little bit or might it have the opposite effect and have him dig in his heels He doesn't care what the foreigners think that's clear One way or no doesn't matter what the topic is he still doesn't care what the foreigners think So certainly not on this one But but it may affect views in the United States Senate for example, which is quite important It may affect views in the markets in New York and the financial sector in New York Which has been very solid. I don't know whether Jamie Diamond talked about the this issue in his early call today But um But he shook and where where are these where are these as they're scared they're all scared And scared that Trump will take revenge against them. We're seeing That's where we got to What's interesting though Professor Portez is we're seeing blowback from within the Republican Party now a number of well I think it's three and counting now a Republican Senator saying we're not going to vote on a new Fed chair until the legal matter with Powell is settled Might that have have a little more weight than this letter you think from the ECB Oh certainly absolutely And that will that really is a cause for For concern for Trump in terms of nominating a new chair in terms of trying to get Trying to get other seats on the on the board of the Fed There's the resistance now is much stronger that said You might think if you remember the federal open market spending you might think that you know You might try to take revenge against you too If you consistently vote against rich report is there a time for one more question learn good ones here We got to get to this CPI report, you know coming up here in 20 minutes professor port is as simple as I can Is the Trump moment transit transportable Translatable to a parliamentary system and a prime minister named Farage Can the the reach of Donald Trump reach over to a different form of democracy Well, you know we had A central bank that was not independent at all That took its marching orders from the UK Treasury up until The Blair government came in in 1997 and the first thing that they did Was establish the independence of the Bank of England in terms of monetary policy the very first move That the Blair government took And that has made a remarkable change we had an inflationary boom and at the end of the 80s Precisely because the chancellor of the x checker the finance minister at that time Wanted to have expansion and so we had a very loose monetary policy and guess what You know, we had this inflationary boom and we're in consequence. We're not nice Gotta leave it there rich reporters. Thank you so much really appreciate it from London business school today On the moment at hand for us and across the Atlantic as a Lexus man for a piercing letter from central bankers in the continent Bloomberg invest returns to New York on March 3rd and 4th where the sharpest voices across banking asset management and private capital Discuss the forces reshaping finance powered by Bloomberg's global newsroom and data from the Bloomberg terminal This flagship summit will cover everything from AI driven disruption and central bank policy shifts to the emerging risks and opportunities in private credit Join the conversation and register today at bloomberg live dot com slash invest Of Europe stay with us more from Bloomberg surveillance coming up after this You're listening to the Bloomberg surveillance podcast catch us live weekday afternoons from seven to 10 a.m. Eastern Listen on Apple CarPlay and Android Auto with the Bloomberg business app or watch us live on YouTube. It's a newspapers would lease them a town Okay, I want to start with this one. Tom because cases of the flu are surging in case you haven't noticed Anyone here coughing in the studio The CDC actually says there have been an estimated 15 million cases of the flu the numbers starting to decline But they're still high But there's a few things that are making things easier for some people Because of COVID people are more comfortable with taking those at home tests for the flu Because that's good at home tests for COVID, right? So you're kind of used to doing that And what they're saying it's leading to more timely diagnosis And what that means is that it's easier to take antivirals like a camouflage Um, and that makes people feel better sooner if you take it within those two days of getting sick Yeah, so if you don't if you miss that window, it's tough Yeah, so that's the thing like people are are missing the window but but now since they're used to taking those at home tests They're getting better sooner and I see more people are masking up. Yes, we're unfortunately used to because of COVID on the train Yeah, definitely. I see that a lot. I got better quickly I mean in John Tucker told me I would What a reckless thing did you take because you weren't lying that is just I almost say got horizontal You know what you got to sleep your sick is all get out so you just get a horizontal. Let's move on. This is depressing But he is feeling better. There you go. There's your update Um, okay, Super Bowl coming up right February 8th. So it's time to talk commercials. It's all about to do commercials I know I know okay, so sources are telling the Wall Street Journal open AI is set to air another commercial it You know how that's debut kind of last year at the Super Bowl for their paid ads And they're saying you're going to see a flood of AI companies during the Super Bowl too because the competition is heating up If you want to know how much an ad is going to cost yes Okay, so ad buyers are telling the journal there are some advertisers are paying more than 8 million dollars for a 30-second spot It's the oral eye on it. I don't know really. I mean it is under a lot of eyeballs But I mean you think that's just for the spot But then you have the millions sometimes tens of millions to come up with the idea You know the whole process of the work to get the ad, you know on top of the 8 million then they have to pay so it's it's a pretty big price tag But that's quite investment It is and a lot of these companies like tech companies athropy Google microsoft open AI perplexity I mean they've all spent like 333 million on TV ads in the U.S. in the last year or so they're they're putting up the money They want to get you know the word out there because some people still concerned about it Man deep singing. He's just published in the last hour on Apple and Google Huge agreement. I think it's been underplayed by the media. I hope to add that for you tomorrow or book solid today What else do you all right? This last one was on the terminal stuck out to me because I every time I hear the word longevity my ears like tune up I know he's on the longevity kick right okay, so this one longevity tourism raises 1.2 trillion questions about Loneliness and this was interesting the author's name on the terminal It's Alice Rob here Bloomberg attended a wellness retreat in Sardinia She saw an ad on Instagram and this is known as like a blue zone So this is a place where they have traditional lifestyles healthy populations So a lot of people go there because it makes them you know feel better olive oil. Yes So she found that she made these connections in the group and that she talked to her about the importance of having connections as you get older And that's where the loneliness kind of episode came in because a lot of people lose friendships and now she says that's the important part of it It's a huge business You're saying what I also think you're never too old to make new friends exactly and that's what point she's trying to make she's saying Sorry get out of here Tom put will be a Michael bar's chair You have to go on a retreat and make your trip Thank you. I think let me tell you in the newspapers This is the Bloomberg surveillance podcast available on Apple Spotify and anywhere else you get your podcasts Listen live each weekday 7 to 10 a.m. Eastern on Bloomberg.com the iHeartRadio app tune in and the Bloomberg Business app You can also watch us live every weekday on YouTube and always on the Bloomberg terminal I'm Barry Rittalts inviting you to join me for the Masters in Business podcast Every week we bring you fascinating conversations with the people who shape markets investing and business CEOs fund managers billionaires Nobel laureates traders analysts economists everybody that affects what's going on in the market Whether you own stocks bonds real estate commodities crypto you really need to hear these conversations Sometimes it's behaviors like Dick Thaler or Bob Schiller sometimes it's fun managers like Peter Lynch Bill Miller Ray Dalio sometimes it's authors Michael Lewis author of the big short and money ball Regardless of the conversation these are the folks that move markets each week That's the Masters in Business podcast with me Barry Rittalts listen on Apple Spotify or wherever you get your podcasts