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US CPI Stays Well-Behaved in December

Don Curren January 14, 2020

Consumer price pressures in the US fell slightly short of the consensus forecast in December, but the miss was small and won’t call into question expectations of continued steady monetary policy at the US Federal Reserve.

The December data do suggest inflation remains well-behaved despite the concerns of at least one Fed policymaker about a possible resurgence in pricing pressures.

The US Bureau of Labor Statistics reported this morning that in December, the all-items consumer price index rose 0.2% on a seasonally adjusted basis, shy of the 0.3% rise expected by economists. 

The index was 2.3% higher over the last 12 months, not seasonally adjusted. While that fell short of the 2.4% pace expected by economists, it was the the largest 12-month increase since the period ending October 2018

The BLS said the index for all items less food and energy rose 0.1% in December, seasonally adjusted, and 2.3% over the year on an unadjusted basis, exactly in line with consensus expectations.

The December data comes one day after Boston Fed leader Eric Rosengren warned that the biggest risks the US economy faces after last year’s rate cuts are from higher inflation and financial-stability problems driven by very low borrowing costs, although he acknowledged these risks are mostly theoretical right now.

The most significant measure of inflation for the Fed is the core PCE inflation index, which was at 1.6% in November.

The BLS said indexes for gasoline, shelter, and medical care all rose in December, accounting for most of the increase in the seasonally adjusted all items index. The energy index rose 1.4%, and the food index rose 0.2% in December.

The Fed’s next decision on monetary policy falls on Jan. 29, and the US central bank is widely expected to stand pat on interest rates. Data from the CME Group indicated that late Monday afternoon the overnight-indexed swaps market was pricing in an 87.3% probability the Fed will keep its target range for the fed funds rate at its current 1.50% to 1.75% range at that juncture.

With the December inflation data providing little incentive to reassess those expectations, the US dollar showed little response to the data this morning.

The greenback has performed relatively strongly this month, with the trade-weighted dollar index rising to its current around 97.55 from the 96.40 area at the end of last year, but it will require fresh positives to advance much further in the very near term.

Don Curren
Market Strategist and Content Editor
dcurren@cambridgefx.com
@dbcurren

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