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United States Inflation December 2017

United States: Core inflation edges up in December

Consumer prices rose a modest 0.1% in December from the previous month, following November’s 0.4% increase. A strong decline in energy prices contributed to December’s soft reading, with gasoline prices down 2.7% on a month-on-month basis. Food prices registered an up-tick after remaining flat during the previous two months. Because of December’s weak increase in consumer prices, inflation edged down to 2.1% in December from 2.2% in November.

Core consumer prices, which exclude volatile items including food and energy prices, rose 0.3% from the previous month in December. This came above market expectations of a 0.2% increase and followed the timid 0.1% month-on-month rise recorded in November. The print was largely driven by strong price increases for used cars and trucks, housing costs and medical care. These dynamics led core inflation to inch up to 1.8% in December from 1.7% in November.

The lack of meaningful inflationary pressures, despite robust economic growth and an exceedingly tight labor market, has been at the forefront of the debate among Federal Reserve officials. In this sense, December’s stronger-than-expected core inflation results are likely to reinforce market expectations of an interest rate hike at the Fed’s March monetary policy meeting. However, any additional hikes this year—the Fed’s “dot plot” currently shows three interest rate increases in 2018—will remain largely dependent on the evolution of core prices.

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