Markets Shake But Risk Sentiment Remains Positive After US Inflation

Everyone was awaiting the USCPI (consumer price index) report today, which was expected to show another cool-off in December, with the median consensus among economists at 6.5%. The headline CPI YoY numbers came as expected, as well as the monthly CPI as they declined, but core CPI MoM showed another increase from 0.2% to 0.3% in December.

That indicates that the increase in prices for most goods and services is picking up pace instead. The USD turned higher initially, but then reversed back down and risk sentiment turned positive, as most indicators slowed apart from monthly core CPI.

US December CPI Inflation Report

• December CPI YoY +6.5% vs +6.5% expected
• November CPI YoY was +7.1%
• CPI MoM -0.1% vs +0.0% expected
• Prior CPI MoM reading was +0.1%
• Real weekly earnings +0.1% vs +0.2% prior

Core inflation:

• December core CPI YoY ex-food and energy +5.7% vs +5.7% expected
• Prior core CPI ex-food and energy +6.0%
• Core CPI MoM +0.3% vs +0.3% expected
• Prior core CPI MoM +0.2%

This is the first m/m reading in inflation in more than a year but the market was tilted towards a soft reading and the initial trade is disappointed with stock futures now down 0.5% from +0.3% pre-data.

Details:

• Used cars -2.5% MoM vs -2.9% prior (Goldman Sachs forecast -1.6%)
• Food +0.3% MoM vs +0.5% prior
• Energy -4.5% MoM vs -1.6% prior
• Gasoline -9.4% MoM vs -2.0% prior
• Fuel oil -16.6% MoM +1.7% prior
• New vehicles -0.1% MoM vs 0.0% prior (Goldman forecast -0.5%)
• Apparel +0.5% MoM vs +0.2% prior
• Medical care +0.1% MoM vs 0.2% prior
• Owners equivalent rent +0.8% MoM (Goldman saw +0.64%)
• Airline fares -3.1% MoM (Goldman saw -2.0%)

Shelter prices and core CPI less energy services (some calling it super core) were up 0.6% on the month as well. CPI ex-food, energy and shelter was -0.1% m/m. You would hope for more of a disinflationary impulse given the cratering in energy prices. That said, the Fed funds market is now more confident in 25 bps at 81% for the Feb 1 meeting and the US dollar is now sinking. US president Joe Biden is set to speak on the inflation report later today which might get markets moving again.

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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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