Killing Softly – The CPI Edition

The U.S. December CPI report came on the softer side. Here are the highlights:

  • Month-over-Month Headline CPI
    • Headline CPI m/m came at -0.4% versus -0.3% expected
    • Gasoline index declined by -9.4% and food index rose by +0.3% so did the index for natural gas and electricity
  • Month-over-Month Core CPI (excluding food and energy)
    • The m/m Core CPI (excluding food and energy) was 0.0% compared to forecast of +0.1%. It is the second time that it did not rise since 2010
    • Shelter index and medical care indexes rose with medical care posting the biggest increase since August 2013; But indexes for apparel, airlines fares, used cars and trucks, household furnishings and operations and new cars declined
  •  Year-over-Year Headline CPI
    • Over the last 12 months headline CPI increased 0.8% before seasonal adjustment versus the expectation of 0.7%
    • Prior month y/y Core CPI was 1.3%
    • Energy index declined by -10.6%; the food index gained by +3.4%, its largest since February 2012;
  • Year-over-Year Core CPI
    • Core increased by 1.6%, its smallest change since February 2014

Here is month-over-month CPI change:CPI_mm_150116_2

Here is month-over-month Core CPI change:CPI_core_mm_150116_2

Here is year-over-year CPI change:CPI_yy_150116_2

Here is month-over-monthCore CPI change:CPI_core_mm_150116_2
It doesn’t look like that CPI is moving towards Fed’ target of 2%. Here is what Narayana Kocherlakota, president of Federal Reserve Bank of Minneapolis, said in his outlook for the US economy and monetary policy in 2015:

  • Says again that he doesn’t favour raising rates in 2015
  • Will take a few years before inflation back to 2%
  • Federal Reserve underperformed on dual mandate for 3 years
  • Lack of Federal Reserve response is further credibility risk
  • Federal Reserve hasn’t acted on inflation expectations drop
  • Federal Reserve eroding credibility by missing inflation goal
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