US: Inflation drops, but core CPI holds firm - Wells Fargo

Data released today, showed that the Consumer Price Index in December dropped 0.1%. The number, according to analysts at Wells Fargo, reflects another substantial drop in gasoline prices. They explain core price inflation remained firm and consistent with the Federal Reserve’s inflation target.

Key Quotes: 

“Led by gasoline, inflation cooled somewhat as 2018 came to a close. The headline Consumer Price Index (CPI) slipped 0.1% month-over-month in December, following a flat reading in November and marking the weakest monthly print since March. For the second consecutive month, substantially lower energy prices played a leading role in tamping down the pace of headline consumer inflation. Retail gasoline prices dropped 7.5% last month, reflecting the sharp drop in crude oil prices over the course of the fourth quarter. Crude oil prices have stabilized at the start of the year, suggesting another outsized monthly decline in retail gasoline prices is unlikely when the January report is released.”

“Despite the recent dampening influences of energy, core consumer inflation held firm in December, rising 0.2% for the third straight month.”

“Concerns about a loss in momentum of core inflation were assuaged, as core CPI inflation has increased at a 2.5% annualized pace over the past three months.”

“If the downside risks pressure core consumer inflation lower, then the Fed will take stock of its economic and policy outlook. However, if core inflation holds firm, the Fed will continue to consider additional rate hikes this year.”