16 Jan 2015
US CPI headed down, but how much? – ING
FXStreet (Barcelona) - Rob Carnell of ING notes that gasoline declines will drive the US headline rate, anticipating US headline inflation to turn negative in January.
Key Quotes
“With gasoline roughly 4% of CPI spending, a 14.5% decline should cut the month-on-month CPI figure by about 0.6ppt. If core CPI rises by 0.1% MoM as expected, then we should be looking for headline CPI to fall by 0.5% MoM, a bit more than the Bloomberg consensus of -0.4% MoM. That would take headline CPI down from 1.3% to 0.6% YoY.”
“With further falls in monthly CPI likely over January, we anticipate headline inflation turning negative in January, and remaining there for several months unless either oil prices start to rise again, or the declines begin to drop out of the index.”
“Typically, such low inflation would be an impediment to the Fed’s tightening intentions. But recently, the Fed suggested that core inflation would get more of their focus when it came to rate decisions.”
“We would not be surprised to see core inflation weighed on indirectly by energy prices (like falling airline tickets). But even a flat core CPI result would still leave core inflation down only slightly at 1.6% – no impediment to Fed tightening.”
“That said, markets seem to be taking a fairly downbeat view of the likelihood of any tightening by the Fed in 2015 – with sentiment dampened by the weak external environment. In which case, the market risk to this release is likely to be skewed to further downside responses if headline inflation falls more than anticipated.”
Key Quotes
“With gasoline roughly 4% of CPI spending, a 14.5% decline should cut the month-on-month CPI figure by about 0.6ppt. If core CPI rises by 0.1% MoM as expected, then we should be looking for headline CPI to fall by 0.5% MoM, a bit more than the Bloomberg consensus of -0.4% MoM. That would take headline CPI down from 1.3% to 0.6% YoY.”
“With further falls in monthly CPI likely over January, we anticipate headline inflation turning negative in January, and remaining there for several months unless either oil prices start to rise again, or the declines begin to drop out of the index.”
“Typically, such low inflation would be an impediment to the Fed’s tightening intentions. But recently, the Fed suggested that core inflation would get more of their focus when it came to rate decisions.”
“We would not be surprised to see core inflation weighed on indirectly by energy prices (like falling airline tickets). But even a flat core CPI result would still leave core inflation down only slightly at 1.6% – no impediment to Fed tightening.”
“That said, markets seem to be taking a fairly downbeat view of the likelihood of any tightening by the Fed in 2015 – with sentiment dampened by the weak external environment. In which case, the market risk to this release is likely to be skewed to further downside responses if headline inflation falls more than anticipated.”