Elevated levels of inflation continue to ripple into the economy as the calendar year turned to 2023. In this environment, UBS agrees with the general consensus that inflation is slowing but believes that the latest November’s CPI print overstated the easing.
“Inflation is slowing, but the most recent CPI report was probably weaker than an underlying trend would suggest. In particular, the depth of the weakness in airfares, used vehicle prices, and non-insurance medical services prices is unlikely to persist,” the financial institution highlighted in a note to its clients this week.
“Eliminating the excess weakness in those categories could add easily add 10bp more to monthly CPI inflation than their contributions the past two months. That said, rent increases will likely trend down and some other core services (communication services, recreational services, and other personal services) are unlikely to see the strength we saw in this month’s report going forward.”
The firm predicted that core CPI inflation levels may remain elevated over the next couple of months. However, UBS also saw core CPI subsiding once rent prices ease.
UBS’ comments come out a week ahead of the December CPI report, which is due out on January 11.
In Thursday’s intraday action, the Dow (DJI) -1.1%, S&P 500 (SP500) -1.1%, Nasdaq Composite (COMP.IND) -1.3%, with similar declines coming from their benchmark tracking ETFs (NYSEARCA:DIA), (NYSEARCA:SPY), (NYSEARCA:VOO), (IVV), and (NASDAQ:QQQ).
These slides came as Wall Street digested more jobs data which pointed to a highly resilient labor market.