CNBC Daily Open: Inflation is more complex than it seems. But markets believe in simple disinflation

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Inflation is proving more complex than it seemed at first. But markets still believe in a straightforward disinflationary path.

• Economists expect January’s consumer price index report to show a 0.4% month-on-month increase and 6.2% annual growth. But there are warning signs that the number could be higher. Price pressures in the supply chain, for one, have been rising lately.

• U.S. stocks rose Monday, with the Dow Jones Industrial Average registering its best day in February. However, Asia-Pacific shares fell, with Japan’s Nikkei 225 closing 0.88% lower as investors continue digesting the news that Kazuo Ueda might be the country’s next central bank governor.

• Ford Motor announced Monday that it will work with a Chinese supplier on a new $3.5 billion battery plant for electric vehicles. The facility will be built in Michigan and is expected to open in 2026.

• The U.K. semiconductor industry is warning that their companies might be forced to relocate overseas if the government doesn’t introduce support packages like the ones in the U.S. and EU.

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If Tuesday’s consumer price index report comes hotter than expected, the S&P 500 could plummet up to 3%, according to JPMorgan’s sales and trading desk.

Months of steadily declining prices have given investors the sense that inflation is on a linear, downward trend. But inflation is more complex than it initially seemed.

Economists are expecting January’s consumer price index to rise 0.4% on a monthly basis — that’s a jump from December’s -0.1% figure, which means that prices actually fell. So far, market chatter is that service inflation — the price of travel, dining out and hospitality, for example — has proven more persistent than goods inflation, largely because of an extremely tight labor market.

But logistic managers are warning that the supply chain is clogging up again, which could contribute to higher prices for goods. “Late fees and warehouse fees are passed onto the consumer, which is why we are not seeing products fall as much as they should,” said Paul Brashier, vice president of drayage and intermodal for ITS Logistics.

Nonetheless, markets showed optimism on Monday. The Dow rose 1.11%, the S&P 500 climbed 1.14% and the Nasdaq Composite advanced 1.48%. Investors may have been hoping for a “Goldilocks-like mix of industrial production recovery and falling inflation,” said Ray Farris of Credit Suisse in a Monday note. Time will tell if that comfortable narrative of disinflation — and the defiant optimism in the markets — hold up.

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