The FED Must Be Taking Notice, As Inflation Picks Up Again in the US Toward the End of 2020 - Forex News by FX Leaders
US CPI Inflation

The FED Must Be Taking Notice, As Inflation Picks Up Again in the US Toward the End of 2020

Posted Wednesday, January 13, 2021 by
Skerdian Meta • 2 min read

Inflation took a deep dive in the first several months of 2020 in the US, as crude Oil prices tumbled lower, slashing down prices for goods and services. Although, it held its head above water at 0.1% in April/May, while in other regions inflation turned negative. In the Eurozone inflation softened further in the last few months, falling to -0.3% since September. The US CPI inflation softened a bit as well, but it picked up again in November and today’s December data is showing another increase.

Inflation is keeping a positive trend and after the stimulus packages form the government and the FED, it should pick up further in the coming months, which would force the FED to evaluate the monetary policy, as the recent comments have shown. So, once the sentiment changes, the USD will turn quite bullish, given that everything remains stable politically and socially in the US.

December US Inflation Report

  • US December CPI YoY +1.4% vs +1.3% expected
  • November CPI YoY was +1.2%
  • Core CPI YoY ex-food and energy 1.6% vs +1.6% expected
  • CPI MoM +0.4% vs +0.4% expected
  • Prior CPI MoM was +0.2%
  • CPI MoM ex-food and energy +0.1% vs +0.1% expected
  • Prior core CPI MoM ex-food and energy was +0.2%
Wage data:
  • Real avg hourly earnings YoY +3.7% vs +3.2% prior
  • Real avg weekly earnings YoY +4.9% vs +4.7% prior
There are no big surprises in the numbers and the initial market reaction has been tepid. On balance, the wage and inflation numbers are fractionally higher and at a pace of +0.4% MoM, the Fed will quickly hit its 2% target. A real gut-check moment is coming in the March-June period when base effects will lead to some high headlines. The Fed says they can look through high numbers temporarily but even a hint that they’re wavering would rattle markets.
Looking at the details of this report, the energy component was a driver, up 4.0%. Food pries continue to be driving perceived inflation, up another 0.4% to bring the YoY rise to 3.9%. Used vehicle prices remain up 10.0% YoY but have fallen for three straight months.
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About the author

Skerdian Meta // Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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