US CPI Quick Analysis: A slow step for disinflation, a big blow for the US Dollar
Premium|Take advantage of 50% OFF on your first month.
Start your subscription and get access to all our original articles.
You have reached your limit of 5 free articles for this month.
Get Premium without limits for only $9.99 for the first month
Access all our articles, insights, and analysts.
UNLOCK OFFER- US core consumer prices extended their gradual climb down in the last month of 2023.
- Markets jump on any hope that interest rates will fall faster.
- Federal Reserve officials' pushback is set to hit a wall of skepticism.
Game over for inflation – that is what investors want to declare, even as price rises remain uncomfortably high. Optimism is set to boost stocks and weigh on the US Dollar for some time.
The US reported a monthly increase of 0.3% in the Core Consumer Price Index (Core CPI) in December, as expected. But, that is an annualized rate of 3.6%. In addition, Core CPI YoY came out at 3.9%, above the 3.8% expected, while headline CPI came out at 0.3% MoM and 3.4% YoY, both above expectations.
Does the mostly stronger-than-expected data imply a surge for the US Dollar and a melting of Gold and stocks? Not so fast.
First, Core CPI YoY still declined to 3.9% – it is improving, just slower than expected. Secondly, as mentioned, markets seem eager to see inflation falling, and the data needs to be a shocker to change that view.
Will the Federal Reserve (Fed) cut rates in its March meeting? There are two more CPI reports and a couple of Nonfarm Payrolls releases until that meeting. In between, the bank has another rate decision in late January – and plenty of opportunities to speak out.
I expect officials to push back against the notion that borrowing costs will fall around the equinox. They dislike market euphoria and especially the rapid fall of long-term interest rates, reflected in Treasury yields. Inflation could still rear its ugly head if borrowers and consumers remain giddy.
Nevertheless, each hawkish pushback by the central bank will likely receive a mere token nod by investors, a dip before the next risk-on move. All in all, the mix of some proof of falling prices and rosy glasses is set to down the US Dollar, while sending stocks and Gold higher.
- US core consumer prices extended their gradual climb down in the last month of 2023.
- Markets jump on any hope that interest rates will fall faster.
- Federal Reserve officials' pushback is set to hit a wall of skepticism.
Game over for inflation – that is what investors want to declare, even as price rises remain uncomfortably high. Optimism is set to boost stocks and weigh on the US Dollar for some time.
The US reported a monthly increase of 0.3% in the Core Consumer Price Index (Core CPI) in December, as expected. But, that is an annualized rate of 3.6%. In addition, Core CPI YoY came out at 3.9%, above the 3.8% expected, while headline CPI came out at 0.3% MoM and 3.4% YoY, both above expectations.
Does the mostly stronger-than-expected data imply a surge for the US Dollar and a melting of Gold and stocks? Not so fast.
First, Core CPI YoY still declined to 3.9% – it is improving, just slower than expected. Secondly, as mentioned, markets seem eager to see inflation falling, and the data needs to be a shocker to change that view.
Will the Federal Reserve (Fed) cut rates in its March meeting? There are two more CPI reports and a couple of Nonfarm Payrolls releases until that meeting. In between, the bank has another rate decision in late January – and plenty of opportunities to speak out.
I expect officials to push back against the notion that borrowing costs will fall around the equinox. They dislike market euphoria and especially the rapid fall of long-term interest rates, reflected in Treasury yields. Inflation could still rear its ugly head if borrowers and consumers remain giddy.
Nevertheless, each hawkish pushback by the central bank will likely receive a mere token nod by investors, a dip before the next risk-on move. All in all, the mix of some proof of falling prices and rosy glasses is set to down the US Dollar, while sending stocks and Gold higher.
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.