The Christmas shopping season and the resumption of travel have caused prices to rise sharply, while housing cost inflation appears to be stabilizing at a high level.
The core Consumer Price Index (CPI) rose 0.55% m / m, against our forecast of 0.63% m / m and consensus of 0.5% m / m.
While the overall pace of core inflation is similar to last month, underlying evidence suggests some stabilization from the recent re-acceleration. This is in line with our view that monthly inflation data will start to moderate next month, and the year-over-year rate will tend to move back towards the target throughout 2022.
The Christmas shopping season and the resumption of travel have caused prices to rise sharply, while housing cost inflation appears to be stabilizing at a high level.
Another strong month was enough to bring the core CPI to 5.5% year-on-year – the fastest pace since the early 1990s.
Yesterday’s CPI report, which follows the unemployment rate drop last week, confirms our forecast that the Fed will start raising rates in March and reducing its balance sheet later this year.
It is also in line with forecasts that the core CPI should peak around 6% in February before moderating in the second half of the year.
Today we are increasingly focusing on the risks associated with the Omicron variant. We forecast a significant slowdown in real growth in the first quarter due to the failure of negotiations on the ‘Build Back Better’ bill and the increase in cases of infection with the virus in the United States. But we also remain concerned about the impact a further disruption of production in China and other key suppliers could have on inventory and retail prices in the United States.