US CPI: Inflation pressures building, not fast enough to alarm the Fed - Wells Fargo

Analysts from Wells Fargo, point out from today’s US inflation report, widespread gains in the core index. According to them, inflation pressures are gradually building. 

Key Quotes: 

“Coming in line with expectations, CPI inflation rose 0.3 percent in December. Headline CPI is now running above 2 percent for the first time since mid-2014, when the 2014-2016 collapse in oil prices began. As expected, gasoline prices were a major driver of December’s increase, rising 3.0 percent. Lower natural gas prices and steady electricity prices, however, tempered the overall gain in energy costs.”

“The core index rose 0.2 percent last month, bringing the year-over-year rate back up to 2.2 percent. Gains were fairly widespread, but once again were driven by the service sector. Core services inflation rose 0.3 percent in December on a rise in shelter costs of the same magnitude.”

“As the labor market continues to tighten, we expect businesses, particularly in the labor-intensive service sector, to pass on a greater share of cost increases and generate higher inflation.”

“The pickup in core CPI, however, should remain fairly gradual and should not incite FOMC officials to ratchet up the pace of tightening currently outlined. The more closely watched core PCE deflator remains below 2 percent and, while also anticipated to rise this year, is not expected to breach the Fed’s target until early next year.”