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US Inflation Higher on Gasoline Surge in December, But Overall Price Pressures Contained

Don Curren January 13, 2021

Headline inflation in the US was slightly stronger than expected on yearly basis in December, but that inflation was powered largely by a sharp increase in gasoline prices, and the data suggest there’s little overall price pressure in an economy battered by the coronavirus pandemic and the associated restrictions and lockdowns.

Excluding food and energy, the level of inflation was unchanged from November year-over-year.

The US dollar lost ground slightly in choppy trading immediately after the release, but remained higher on the session on a trade-weighted basis, according to the DXY. It trimmed its gains against its Canadian counterpart, and was about 0.5% higher than the loonie in the aftermath of the inflation data.

The overall Consumer Price Index rose 0.4% on a seasonally adjusted basis in December, and increased 1.4% over the last 12 months, not seasonally adjusted, the Bureau of Labor Statistics reported.

The yearly increase was consistent was slightly higher than economists’ forecasts for an increase of 1.3% and up from the 1.2% recorded in November, while the monthly rise was exactly as expected as economists.

The BLS said the seasonally adjusted increase in the all-items index was driven by an 8.4% increase in the gasoline index, which accounted for more than 60% of the overall increase.

The food index rose in December, as both the food at home and the food away from home indexes increased 0.4%, the BLS said, and was up 3.9% over the last 12 months.

The core index, which excludes food and energy rose 0.1% on a seasonally adjusted basis in December, in line with the consensus forecast, but lower than November’s 0.2% and was 1.6% higher on a year-over-basis, also consistent with expectations and in line with November’s yearly rise.

The BLS said the indexes for apparel, motor vehicle insurance, new vehicles, personal care, and household furnishings and operations all rose in December. The indexes for used cars and trucks, recreation, and medical care were among those to decline over the month, it said.

There’s little in the data to tilt expectations of steady monetary policy from the US Federal Reserve in either direction, and the attention of the foreign exchange market is little to remain on overall fluctuations in risk appetite driven by the turmoil n US politics and the unfolding of the coronavirus pandemic.

The US dollar has been performing relatively strongly late last week, but was down modestly on the week as of mid-morning Wednesday.

 

Don Curren
Market Strategist and Content Editor
@dbcurren