Markets
US inflation figures were this week’s second focal point for markets, next to Wednesday’s payrolls. January prices rose by 0.2% m/m to be up 2.4% in yearly terms. That was slightly below consensus of 0.3% and 2.5%. Core inflation printed bang in line with expectations, accelerating from December’s 0.2% to 0.3% m/m and resulting in an annual 2.5%. Both headline and core eased in y/y terms from 2.7% and 2.6% respectively, the latter being a new five year low. Energy (-1.5%) and within that category especially gasoline prices (-3.2%) showed some of the steepest monthly declines, together with used cars & trucks (-1.8%). Housing price pressures decelerated quite strongly from December’s 0.4% to 0.2%, dragging the overall numbers down due it its sizeable basket weight (44%). Supporting inflation last month was apparel – considered a tarrif pass-through gauge (0.3%) – and airline fares (+6.5%). Core services (ex. housing) was 0.56%, the biggest increase in a year. In y/y terms, this closely watched indicator (for it measures “domestic” inflation) by the Fed fell to the lowest since 2021. But a more dynamic annualized number based on the three-month moving average marched to the highest since April 2024. It’s not a complete surprise though that markets are ignoring such nuances. US yields dropped in a kneejerk sigh-of-relief response similar (but obviously opposite) to the payrolls reaction. The curve bull flattens with net daily changes varying between -3 and -3.8 bps. The 2-yr yield dropped to a new YtD low and tested the October 2024 multiyear around 3.4%. The timing for a full Fed rate cut didn’t change (July) although the June scenario is regaining traction (85%). Cumulative easing bets for all 2026 rise slightly to the most since the Fed’s last rate cut in December last year (>60 bps). European yields fell in a catch up move with the US and extended declines to around 3 bps in sympathy with their US peers after the CPI. US stock futures rebounded after the CPI-release but still trade with minor losses after the cash open. European stocks are still down on the day. Just as the US dollar failed to profit from Wednesday’s post-payrolls yield uptick, it barely loses territory now. EUR/USD (1.187) gets no further than wiping out the previous, small losses. DXY is similarly going nowhere around but slightly below 97. JPY’s week-long rally met resistance near the YtD highs with USD/JPY eking out tiny gains to 153.
News & Views
The consumer price index in Switzerland in January declined 0.1% compared with December 2025. The price index was 0.1% higher compared to the same month last year. Core inflation (ex. fresh and seasonal products, energy and fuel) rose 0.1% M/M and 0.5% Y/Y. The monthly decease in headline inflation was due to lower prices for electricity and supplementary accommodation. Prices also decreased for air transport, as did those for clothing and footwear. Prices for hotels and international package holidays increased, as did car insurance premiums, the Swiss Statistical office said. The January data were based on a new CPI basket due to a regular revision. Interesting in terms of the impact of the Swiss Franc on inflation, prices of imported goods declined 0.6% M/M and 1.5% Y/Y. The January inflation data, while very low, probably won’t come as a surprise for the Swiss National Bank. In its December forecast, the SNB forecasted inflation at 0.1% Y/Y in Q1 and 0.3% for 2026 as a whole. With the policy rate at 0%, SNB recently indicated that the bar for cutting it back in negative territory remains rather high. At EUR/CHF 0.912, the franc again trades near all-time strongest levels against the euro except for the FX-spike in early 2015.
Polish January CPI inflation printed at +0.6% M/M, further reducing the Y/Y reading to 2.2% Y/Y from 2.4% in December. Inflation dropped further below the 2.5% inflation target of the National Bank of Poland, but the outcome was slightly above consensus estimates. Food prices rose 1.1% m/m, dwelling prices rose 1.3% m/m (of which electricity gas and other fuels rising by 1.9%). Fuels for transport declined 2.4% m/m. Even as inflation was higher than expected, the central bank will probably still discuss a rate cut (policy rate currently 4%) at the early March meeting, which comes with new economic forecasts. Several MPC members including governor Glapinski recently mentioned the option of a rate cut at the March meeting. The zloty 2y swap only rises marginally today (3.52%; +1.75 bps). The zloty gains slightly to EUR/PLN 4.21.
