US CPI: Pickup in core inflation supportive of more Fed tightening - Wells Fargo
|According to analysts from Wells Fargo, CPI Inflation is trending higher and they point out that core inflation was noticeably softer at 0.1%, but was held down by weakness in more volatile components like airfare, lodging and apparel.
Key Quotes:
“Consumer price inflation firmed in November with the consumer price index (CPI) rising 0.4 percent. That pushed the year-ago rate up to 2.2 percent compared to 1.7 percent last November. Headline inflation was lifted by higher energy prices in November.”
“While the headline gain was in line with expectations, the 0.1 percent rise in core inflation was weaker than anticipated. Core services rose 0.2 percent, which marked a slowdown from the previous month. The weaker outturn was in no small part driven by some of the more volatile components of core services, including lodging away from home (down 1.3 percent) and airline fares (down 2.4 percent).”
“Fed officials have been concerned this year about the slowdown in core inflation that began last spring. Core inflation has been picking up on trend, with the three-month annualized rate coming in at 1.9 percent. That should push up the year-over-year rate, which edged back down to 1.7 percent last month. With much of the weakness in November core inflation coming from the more volatile components, we continue to expect inflation to trend higher in the coming months.”
“Today’s FOMC meeting is almost certain to conclude with another 25 bps increase in the fed funds rate. Additional rate hikes in 2018, however, are likely to hinge on further gains in inflation. The Fed’s preferred measure of core inflation, the PCE deflator, has reached or surpassed the Fed’s 2.0 percent target in only five months of the current expansion, leaving a number of committee members worried about the persistent shortfall. As inflation should more clearly pick up in the coming months, we expect the FOMC will continue on with its gradual pace of tightening in the year ahead.”
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