US inflation helps Fed rate hike story - ING

James Knightley, Senior Economist at ING, notes that US consumer price inflation came in exactly in line for December with the headline rate rising 0.3%MoM leading to an annual inflation rate of 2.1% versus 1.7% in November. The core (ex-food and energy) rose 0.2%MoM. Leaving the annual rate at 2.2% versus 2.1% previously. This is the first time that both headline and core US inflation is rising at 2% or more since 2Q2014.

Key Quotes

Fuel prices were the main culprit with energy prices rising 1.5%MoM and transportation costs increasing 1%MoM. Most other components rose 0.2% or 0.3% but there was some softness in food (flat on the month) and apparel (-0.7%MoM)

With headline inflation likely to move up towards 2.5% in the second half of the year and President Trump promising pro-growth and pro-job policies in what already is a fairly strong story, it means further Federal Reserve rate hikes are not far away. We expect the next one in March with a further move higher in 3Q17.

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