1. Hello Guest Do you know binary.com offers exclusive $20 No Deposit Bonus for FX Binary Point visitors? Click here to sign up

Low energy price causes US CPI to fall 0.1% in December

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 20, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Joined:
    Oct 7, 2015
    Messages:
    27,524
    Likes Received:
    0
    FXStreet (Mumbai) - US Consumer Price Index (CPI) slipped 0.1 per cent in December after remaining unchanged in November. The fall was primarily the result of a drop in prices of energy goods. Also, rise in the price of services remained moderate. The CPI increased 0.7 per cent in the 12 months through December, above the 0.5 per cent year on year increase seen in November. However, it came in below the estimated 0.8 per cent rise.

    Energy prices dropped 2.4 per cent in December as compared to 1.3 per cent drop in November. Gasoline prices were down 3.9 per cent last month after having dropped 2.4 per cent in November. Food prices fell for a second straight month. Medical care costs rose 0.1 per cent, down from a 0.4 per cent rise seen in November. The cost of doctor visits and hospital costs stayed unchanged in December. Apparel prices fell for a fourth straight month and came in at 0.2 per cent. Prices for new motor vehicles also dipped 0.1 per cent, after having risen in November.

    Strong dollar on the other hand lowered the prices of goods like appliances, toys, tools or clothing which are shipped to the US after being produced elsewhere. The value of goods produced overseas fell the moment they were converted to dollar. This factor forced US manufacturers to lower prices of goods as they struggled to stay competitive when pitted against foreign rivals. Rising inventory also had negative impact on prices.

    Core CPI, which strips out food and energy costs, increased 0.1 per in December, a fall from 0.2 per cent increase seen in the previous three months. The core CPI rose 2.1 per cent in the 12 months through December, marking the largest gain since July 2012. Core CPI was 2.0 per cent year on year in November. The increase in the core CPI was held back on account of small increases in rents and medical care costs. Owners' equivalent rent of residences increased 0.2 per cent. Year on year it increased 3.1 per cent in the 12 months through December.

    Prices are being kept on check by falling oil prices which are currently at a 13 year low. Inflation has stayed way below the Fed’s 2 per cent inflation target for three years now and it does not look like it is going to move up any time soon.

    The Fed had raised its interest rate in December by 25 basis points to between 0.25 per cent and 0.50 per cent and had said it looks to raise rate four times in 2016. The Fed had also mentioned that the subsequent increase in rates would be gradual and data dependent.

    The minutes of Fed’s December meeting highlighted that FOMC members during the meeting had flagged the risks related to achieving inflation target. The minutes also acknowledged the “uncertainty and risks present in the inflation outlook”. Considering this uncertainty, the Fed stressed that ‘the Committee will carefully monitor actual and expected progress toward its inflation goal’ before arriving on rate decision.

    Given today’s data which highlights a weak price environment, the current turbulence in the financial markets and slowing of growth, the Fed does not look like it will raise interest rate in March. Markets now expect the Fed to raise rates only in June this year. Traders in futures markets see the Fed raising rates just twice by year-end, to just under 1 per cent.
    For more information, read our latest forex news.
     

Share This Page