James Knightley, Chief International Economist at ING, offers his thoughts on today's U.S. CPI report.
"US CPI rose a tenth more than expected to 0.4% month-on-month/5.4% year-on-year while core came in-line with the consensus prediction at 0.2%/4.0%. The larger headline figure was caused by energy prices rising 1.3% MoM and food gaining 0.9% MoM."
"Gasoline prices have accelerated through the first half of October, suggesting more upside from this component next month and it will feed through into higher transportations costs too."
"Within core apparel prices fell 1.1% and used cars and trucks fell 0.7% while medical care was flat and airline fares fell sharply again. While these are positive developments we don’t see them as being sustainable."
"Another key reason why we think inflation will stay higher for longer is housing costs. Primary rents and owners’ equivalent rent account for a third of the CPI basket with movements in these components tending to lag 12-18 months below house price changes."
"Putting this altogether it means we think headline inflation stays above 5% through 1Q 2022 with core inflation above 3.5% through 2Q 2022. This hardly fits the “transitory” narrative put out by many at the Fed."
"We are already predicting earlier and swifter policy action from the Fed than the market – QE taper to end in 2Q 2022 with rate hikes in September and December next year. An acceleration in these inflation expectations would bring that time-line even further forward."