US Inflation Quick Analysis: US dollar set to slip as Fed feels more comfortable with receding inflation

Hawks are hiding – the Consumer Price Index is edging lower, and it means lower chance of new rate hikes from the Federal Reserve (Fed). Markets like it.

The figure that makes headlines beyond financial media is headline inflation, which surprised to the downside with a rise of 4.9% vs. 5% expected. That drop under the round number is good news for consumers, and impacts inflation expectations. 

The data relevant for markets is Core CPI – price rises excluding volatile energy and food prices, which are set on global markets and are less sensitive to Fed actions. This gauge of underlying inflation remains strong – 0.4% MoM, like last month, and 5.5% YoY, which is too high.

Nevertheless, that 0.4% level reflects an annualized increase of 5%, under the YoY level of 5.5%. That means a gradual fall in Core CPI. Moreover, it continues falling from the highs above 6%. The trend is clear. 

Another small improvement comes from the "non-shelter core services" figure – aka "super core." It slid from 0.29% MoM to 0.27% MoM. Two hundredths of a percentage point may sound minimal – it is – but that data point adds to a broad picture of disinflation. 

The CPI report comes on top of the Nonfarm Payrolls (NFP) figures released less than a week ago, and together there is a compelling case for pausing. Investors already see a growing chance of rate cuts, and that weighs on the Greenback. 

I expect further gradual declines for the world's reserve currency, while Gold and stocks continue their upward march. Steady, but with a clear direction.