US Inflation Quick Analysis: Team Transitory wins, dollar loses, why the trend may extend


  • US Core CPI missed estimates with 4% against 4.2% projected. 
  • The theory that 2021 inflation is only transitory has received a big boost. 
  • Dollar sales may be exacerbated by expectations for a delay in Fed tapering. 

What goes up must come down – and clunker prices are a prime example. Costs of used vehicles drove the surge in core inflation in recent months, as Americans emerged from lockdowns and production of new cars suffered from the global chip shortage. However, as the summer progressed, price rises went into reverse. That is one of the biggest reasons for the downbeat core inflation.

While the headline Consumer Price Index remained elevated at 5.3% YoY in August – partly a result of high fuel prices – Core CPI is down to 4%. That is below 4.2% projected and a clear shift of gears. 

The publication came eight days before the Federal Reserve announces its decision and it cements a "no-taper" announcement. Fed Chair Jerome Powell had already indicated he is in no rush to reduce the Fed's $120 billion/month bond-buying scheme in his Jackson Hole speech. Tapering may have to wait longer.

When will the world's most powerful central bank withdraw stimulus? The prospects of another delay – from November to December or perhaps only 2022 – already sent the dollar down. More greenbacks in circulation mean a weaker currency.

Will the dollar continue falling? There are good reasons to expect further falls. The CPI report piles on top of the weak jobs report for August. Moreover, the fall of core inflation is beyond one disappointing data point – it is a victory for Team Transitory. Powell and doves within and without the Fed insisted that price rises are only a temporary bump – and they are now vindicated. 

As long as the "transitory" theory of price rises takes hold, the dollar could continue its downtrend. Retail sales figures for August and consumer confidence data for September are also due out this week, and they are unlikely to change the notion of a cooldown. That is dollar negative. 

 

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.

Feed news

How do emotions affect trade?
Follow up our daily analysts guidance

Subscribe Today!    

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD tumbles below 1.17 as Fed sets clear taper timeline

EUR/USD has reversed course, plunging under 1.17 after the Fed signaled tapering of bond buys as soon as November, and the conclusion of the process in mid-2022. The hawkish surprise means a rate hike could come sooner. 

EUR/USD News

GBP/USD pares gains on Fed's hawkish shift

GBP/USD is trading under 1.3650, falling as the Fed signaled tapering could begin shortly and end in mid-2022. The prospects of US rate hike are boosting the dollar across the board. 

GBP/USD News

Gold: Fed's hawkish tone marred by risk-on sentiment

Fed leaves interest rates unchanged says moderation in asset purchases "may soon be warranted". Gold volatile on the FOMC statement and rallies into daily resistance. Risk-on tone persists surrounding Evergrande contagion prospects abating. 

Gold News

XRP price bound for another dip before 40% rebound

Ripple price came down 20% since the beginning of this week. With some upside today, bulls stand to face a bull trap that could get quite painful. A better entry point at $0.78 looks to be more promising for bulls.

Read more

Powell Quick Analysis: Three hawkish points propel dollar, NFP critical to cement tapering

Powell surprised by signaling taper announcement could come in November. Tapering may end by mid-2022, opening the door to earlier rate hikes. Powell's comment on employment goal "all but met" is a significant hawkish shift. 

Read more

Majors

Cryptocurrencies

Signatures