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US CPI slips in December on energy price drop, core inflation 'solid'

By Alexander Bueso

Date: Friday 11 Jan 2019

US CPI slips in December on energy price drop, core inflation 'solid'

(Sharecast News) - US consumer prices fell back just as expected last month amid a sharp drop in energy costs but, according to analysts, amid broad-based inflationary pressures at the core level.
According to the Bureau of Labor Statistics, the rate of increase in the headline consumer price index slowed from a year-on-year pace of 2.2% for November to 1.9% in December (consensus: 1.9%).

The cost of food picked-up noticeably, rising by 0.4% versus the previous month, but energy costs slid by 3.5%.

Within the latter, and in comparison to November, the price of gasoline fell by 7.5% and that of fuel oil by 11.4%, although the price of electricity increased by 0.7% and that of piped utility gas bounded ahead by 5.6%.

At the 'core' level meanwhile, which excludes both food and energy costs, CPI was up by 0.2% on the month and by 2.2% on the previous year (consensus: 2.2%).

Outside of food and energy, the prices of shelter rose by 0.3% on the month, alongside an increase of 0.4% for medical care services.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, highlighted the "solid" increase seen in core CPI, although he added that the trend remained "stable".

"Even if the Dec m/m increase is repeated through Q1 - a tall order given the downward pressure on used auto prices and airline fares - base effects will push the y/y rate down to 2.1% until April. Core inflation hit 2.3% in July this year, and the rate is unlikely to rise above that level until June, unless the run-rate increases," he told clients in a research note.

"[...] In the meantime, the recent core CPI numbers ought to weaken the idea that the U.S. faces meaningful renewed disinflation pressure; we just don't see that. The NFIB survey of selling prices hints at higher inflation in the second half, but the numbers for now are not alarming."

Mickey Levy at Berenberg Capital Markets chimed-in saying: "Energy and other commodity prices remain low and the stronger U.S. dollar has lowered prices of non-petroleum imports, offsetting the upward pressure on consumer prices from solid domestic demand and tariffs. Measures of inflation expectations remain relatively low. Inflation pressures in the U.S. are well contained."

As of 1450 GMT, the yield on the benchmark 10-year US Treasury note was down by five basis points to 2.69% and that on the two-year note by four to 2.53%.

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