25 Mar 2015
US CPI data doesn’t point to major inflation undershoot – BTMU
FXStreet (Barcelona) - The US CPI data released yesterday indicates that fear of low inflation in US is unlikely to escalate, as wage growth would be the true determinant of the Core CPI levels rather than the dollar strength, notes Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ.
Key Quotes
“Yesterday, we had the CPI data from both the US and the UK. Charting the core CPI indices of the two countries it is clear that a major divergence is taking place with much softer core inflation in the UK than in the US."
“Perhaps the UK being a smaller more open economy means the recent gains for the pound is having a greater impact – deflation in the euro-zone is more easily imported to the UK given its greater ties with the euro-zone.”
“We have previously highlighted the fact that US import prices would come under downward pressure due to the surge of the dollar and of course Fed Chair Yellen stated this last week in her press conference.”
“However, the Cleveland Fed in a statement by some researchers cautioned that the impact is overblown and that the pass-through to CPI inflation is modest. One factor is the high percentage of imported goods that are priced in US dollars.”
“The data yesterday certainly suggests that the fears of too low inflation in the US are unlikely to escalate. While the strong dollar is deflationary, the core CPI level will be more determined by wages.”
“Assuming the tightening labour market starts to lift wage growth, CPI is set to only decline modestly and will be viewed, as Yellen says, as “transitory”.”
“Ex-energy services inflation, which accounts for nearly 59% of the total CPI basket in the US increased by 2.5% on an annual basis in February.”
“The US inflation picture looks quite different than the picture in the euro-zone or even in the UK.”
Key Quotes
“Yesterday, we had the CPI data from both the US and the UK. Charting the core CPI indices of the two countries it is clear that a major divergence is taking place with much softer core inflation in the UK than in the US."
“Perhaps the UK being a smaller more open economy means the recent gains for the pound is having a greater impact – deflation in the euro-zone is more easily imported to the UK given its greater ties with the euro-zone.”
“We have previously highlighted the fact that US import prices would come under downward pressure due to the surge of the dollar and of course Fed Chair Yellen stated this last week in her press conference.”
“However, the Cleveland Fed in a statement by some researchers cautioned that the impact is overblown and that the pass-through to CPI inflation is modest. One factor is the high percentage of imported goods that are priced in US dollars.”
“The data yesterday certainly suggests that the fears of too low inflation in the US are unlikely to escalate. While the strong dollar is deflationary, the core CPI level will be more determined by wages.”
“Assuming the tightening labour market starts to lift wage growth, CPI is set to only decline modestly and will be viewed, as Yellen says, as “transitory”.”
“Ex-energy services inflation, which accounts for nearly 59% of the total CPI basket in the US increased by 2.5% on an annual basis in February.”
“The US inflation picture looks quite different than the picture in the euro-zone or even in the UK.”