FXStreet (Delhi) – James Knightley Senior Economist at ING, notes that the US headline inflation is likely to rise sharply as last years’ plunge in oil prices drops out of the annual comparison, but the latest falls in brent crude suggest the Fed can keep policy tightening slow and steady. Key Quotes “Headline consumer price inflation is likely to jump today to around 0.6%YoY from the 0.2% rate recorded in October, as the effects of last year’s plunge in the oil price drops out of the annual comparison. The Brent crude oil price fell from $103/bbl in September last year to $48/bbl in early January 2015 and while oil prices have hit new lows in recent days, the declines are smaller in scale that last year’s drop. Indeed, even with oil prices hovering around $37/bbl currently, this should not stop headline inflation rising further.” “In any case we are now starting to see service sector inflation rise, led by medical care and housing costs. With wages also picking up, this is likely to add to core inflation pressures given that wages tend to be the largest cost input for service sector firms – they presumably will want (and be able to) maintain profit margins in an environment of healthy demand.” “So, with employment growth looking strong, wages picking up and headline and core inflation starting to rise (core CPI should come in at 2%YoY today ) the Federal Reserve’s check list for rate hikes of “some further improvement in the labour market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term”, should have been met. As such, we look set for a 25bp hike tomorrow.” For more information, read our latest forex news.