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US CPI Consistent with Contained Inflation

Don Curren January 11, 2019

Consumer price inflation in the US slipped lower on a monthly basis in December, broadly consistent with both the consensus forecast and the widespread expectations that inflation will ebb in the coming months in the wake of lower energy prices.

The US Bureau of Labor reported that the Consumer Price Index declined 0.1% in December from the previous month on a seasonally adjusted basis after being unchanged in November. Over the last 12 months, the all items index increased 1.9% before seasonal adjustment.

The US dollar did not react significantly to the news, which was fairly closely aligned with expectations. Economists had expected an annual headline inflation rate of 1.8% and a decline of 0.2% on a monthly basis.

The seasonally adjusted decline in the all items index was caused by a 7.5% slump in the gasoline index in December. The food index rose 0.4% in December.

The BLS said the index for all items less food and energy increased 0.2% in December as it did in October and November. Along with the shelter index, indexes for recreation, medical care, and household furnishings and operations all increased in December, while the indexes for airline fares, used cars and trucks, and motor vehicle insurance all declined.

Although an important indicator of price pressures in the consumer sector, the Consumer Price Index in the US is not the preferred inflation metric of the Federal Reserve, which focuses instead on the price data in the monthly consumer income and expenditure report.

Expectations of a sustained upturn in inflation have waned in recent weeks as oil prices stumbled and amid doubt about the sustainability of growth near or at the potential growth level in the US.

Bottom Line: The US dollar shrugged off an as-expected result in the US Consumer Price Index in December, but the data were consistent with the widely held view that inflationary pressures are subsiding. The data suggest the Fed can stand pat on interest rates in the near term, at least.

Don Curren
Market Strategist and Content Editor

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