Core CPI shows further moderation, but services inflation ticks up

Headline CPI printed at 6.5% y/y and core inflation came in at 5.7%. Core CPI was 0.3% m/m, which equates to 3.7% y/y, but the series is moving in the right direction. The market is now pricing in a much less aggressive 25bps hike by the Fed for 1 Feb. The shelter index showed an acceleration, coming in at 0.8% m/m, higher than November's 0.6% m/m. However, with the housing sector relatively weak, rents are likely topping out. Services prices excluding rent rose 0.4% for December, which is surprising given that November's were flat. However, with the ISM Service PMI showing a surprise contraction, this is likely to be temporary. More data points are needed for a trend to be apparent, and inflation still needs careful monitoring as it will be a key determinant regarding the Fed pivot scenario.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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