Household inflation expectations didn’t really change all that much in the new year. That’s the big takeaway from the New York Fed’s Survey of Consumer Expectations for January, which came out Monday morning. That’s mostly a good sign for Jay Powell, since just expecting high inflation can lead to high inflation.

On Tuesday, we’ll get the first real inflation reading for 2023: January’s consumer price index. Generally speaking, CPI looked like it was heading in the right direction at the end of 2022. So much so that the word “disinflation” entered the Fed Chair’s vocabulary. So what should we be looking for?

While every CPI report these days is important, January’s report is going to be extra important, said economist Kathy Bostjancic at Nationwide. 

“It’s just a really critical time for the Federal Reserve, and for the markets and just for the economy in general,” she said.

Year-over-year inflation was 7.8% in October, 7.1% in November and 6.4% in December. Economists want to see that momentum continue.

If the January numbers continue that downward trend, Bostjancic said we can be more sure that inflation is indeed in the process of getting whipped. But “if we don’t see further improvement this month,” she said, “that affects sentiment, market sentiment and maybe consumer sentiment because this gets widely reported by [Marketplace] and others.”

Of course, 2022 taught us that one month’s inflation data can be skewed by anything from COVID lockdowns to Amazon Prime Days. Or — in January’s case — sunshine.

“We have had pretty decent weather in January,” said Erik Lundh, an economist with the Conference Board. “People get out more often, maybe they spend a little bit more.”

January’s CPI is also the first time the Bureau of Labor Statistics is using a new methodology, one that could make the price of goods more important than the price of services.

Because many goods are actually dropping in price, “the ultimate impact throughout the year is likely to be that inflation is going to be a little bit lower than it otherwise would have been,” said Richard de Chazal at William Blair.

While goods may be getting cheaper, prices for services like hotels and rental cars are still going up.

Slowing the rise in service prices is Jay Powell’s biggest priority now, said economist Julie Smith at Lafayette College. “Because that’s really the only way we can get back to an inflation rate that’s closer to the 2% target of the Fed.”

We’re heading in that direction, Smith said. But it’s going to take a while.