Analysts at ANZ explained that the US CPI came in above expectations at 0.5% m/m, with core inflation at 0.35% (3m ann. 2.9% - 6-yr high).
"The market has been waiting for this number to confirm if the pickup in average hourly earnings is feeding through to broader price pressures.
The data appears to confirm this trend and gives a green light to test support on bonds.
Energy prices were a significant driver of the headline, while core inflation was lifted by apparel costs (+1.7%); used vehicles (+2.4%); OER Residences (+0.3%); medical care services (+0.6%); and transportation services (+0.8%) = broad based. Separately, retail sales were weaker than expected. Sales fell in 7 of 13 categories.
The combination of higher wage growth and declining consumption momentum may suggest the fall in the savings rate, rise in credit, and interest rates could be starting to pinch households a bit. The data are volatile, so it is too early to call ‘stagflation’, however we are keeping a close eye on the consumer with saving rates so low."
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