US CPI: Core and headline inflation to print at 5.4% and 7.1%, respectively – Nordea Markets
11.01.2022, 15:50

US CPI: Core and headline inflation to print at 5.4% and 7.1%, respectively – Nordea Markets

Inflation data will be released on Wednesday in the US. Analysts at Nordea Markets, see the December core inflation reading to print in line with consensus at 5.4%, which is the highest number since 1991. They point out unresolved supply restrictions are still the reason behind the inflationary pressure.

Key Quotes: 

“Contributions originate from the usual suspects – used vehicles and rent of shelter. Our models suggest that inflation in owner’s equivalent rent of shelter (OER) was above 4% in December, implying a contribution >1.2% to core inflation. 2021 has surely been the year of surging prices on used cars, a peculiar contributor to the broad index. We expect used car prices to accelerate with more than 2.5% from November, leading to y/y inflation above 35%.”

“Minutes from the December meeting revealed that the bottlenecks in supply chains and labor markets are more rigid than firstly anticipated by Fed officials, doubtlessly leading to an even higher inflation reading in December. However, Fed officials argue that bottlenecks are likely to ease soon which leads us to believe that inflation peaks in either the current or next print. The combination of reversed base effects, a larger supply, and weakening of foreign demand for American goods will lead to a downward pressure on prices, eventually easing inflation.”

“Our prospects of high readings tomorrow have us believe in a strong USD and a further increase in the long-dated Treasury yields. We still expect Fed’s lift-off to occur in March, three months early compared to most forecasters. Prepare accordingly.”

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