Mainly due to higher energy prices US CPI inflation rose from 1.2% y/y in November to 1.5% in December, the strongest pace since August. The recent low was 1.0% in October.
The core rate was stable at 1.7% for the fourth straight month. The recent low was 1.6% in June, while core inflation was 1.9% 12 months ago.
Owners’ equivalent rent, a key component to watch going forward (30% of core CPI), were up 0.2% from November suggesting that an acceleration is ongoing. The 3-month annualised rate rose to 3.0%, the highest since January 2008.
Implications
With both headline and the core CPI in line with expectations we expect no impact on the Fed’s tapering plans (USD 10bn per meeting). Comments by the Fed’s Evans yesterday support our view that the threshold for stopping or slowing down the taper pace is rather high.
We still expect headline CPI inflation to drop back close to 1% in February, followed by a renewed gradual move towards 2%, expected to be reached in late 2014. The pickup in expected to be led by rents and, with a lag, some pressures from stronger wage increases.
Nordea