- CPI declined a massive 0.7% in January and dropped 0.2% on a YoY basis
- Core inflation increased at a healthy 0.2% as the services components continue to gain
- We expect to see positive inflation in February but our annual forecast remains low
Downward pressures on inflation intensified in January, with both food and energy prices weighing on headline CPI. As expected, energy prices declined for the seventh consecutive month, reflecting a significant 18.7% drop in the gasoline index. In an unusual twist for the CPI report, prices for food at home fell 0.2% for the first time since May 2013, mostly stemming from dairy and related products as well as fruits and vegetables. This was mostly offset by a modest increase in the prices of food away from home. Overall, headline CPI declined 0.7%, marking the largest monthly drop since December 2008. Excluding food and energy, prices increased 0.2% following a 0.1% increase in December. This confirms our view on the limited pass-through to core inflation.
January’s significant drop in headline inflation is likely to be the last for a while. We have already seen a measurable increase in energy prices throughout February thus far, with Brent crude oil prices up nearly 25% since January 30th. WTI prices have increased a more modest 6% since the end of last month. Natural gas prices have also ticked up more than 11% throughout the past few weeks. All of this suggests a positive adjustment for headline CPI in February, with core inflation expected to remain slow but steady. Despite our expectations for stronger upward pressures in the coming months, our forecast for average inflation in 2015 remains low. January’s YoY inflation rate was much lower than expected, at -0.2% compared to 12 months ago, so we would need to see a significant pickup in 2H15 in order to achieve an annual average near 1.5%. Core inflation is falling right in line with our expectations at 1.6% YoY in January, setting up nicely for an annual average near 1.9% for 2015.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
AUD/USD jumps above 0.6500 after hot Australian CPI data
AUD/USD extended gains and recaptured 0.6500 in Asian trading, following the release of hotter-than-expected Australian inflation data. The Australian CPI rose 1% in QoQ in Q1 against 0.8% forecast, providing extra legs to the Australian Dollar upside.
USD/JPY hangs near 34-year high at 154.88 as intervention risks loom
USD/JPY is sitting at a multi-decade high of 154.88 reached on Tuesday. Traders refrain from placing fresh bets on the pair as Japan's FX intervention risks loom. Broad US Dollar weakness also caps the upside in the major. US Durable Goods data are next on tap.
Gold price cautious despite weaker US Dollar and falling US yields
Gold retreats modestly after failing to sustain gains despite fall in US Treasury yields, weaker US Dollar. XAU/USD struggles to capitalize following release of weaker-than-expected S&P Global PMIs, fueling speculation about potential Fed rate cuts.
Ethereum ETF issuers not giving up fight, expert says as Grayscale files S3 prospectus
Ethereum exchange-traded funds theme gained steam after the landmark approval of multiple BTC ETFs in January. However, the campaign for approval of this investment alternative continues, with evidence of ongoing back and forth between prospective issuers and the US SEC.
US versus the Eurozone: Inflation divergence causes monetary desynchronization
Historically there is a very close correlation between changes in US Treasury yields and German Bund yields. This is relevant at the current juncture, considering that the recent hawkish twist in the tone of the Fed might continue to push US long-term interest rates higher and put upward pressure on bond yields in the Eurozone.