The United States Consumer Price Index (CPI) report for December is scheduled for release on Wednesday at 13:30 GMT. As a critical gauge of inflation, this report by the Bureau of Labor Statistics (BLS) is anticipated to reveal headline CPI inflation inching higher to 2.9% on a year-over-year (y/y) basis. In contrast, core inflation is expected to remain steady at 3.3% y/y. Monthly projections suggest a 0.3% increase in headline CPI and a modest 0.2% rise in core CPI.
Amid these inflation expectations, the Federal Reserve is widely predicted to maintain interest rates at their current levels in January. The CME Group's FedWatch Tool indicates a 97% probability that the Fed will leave rates unchanged during its meeting on January 29. Despite the potential for the CPI figures to provide upward momentum for the US Dollar (USD), analysts suggest that immediate changes to the Federal Reserve's monetary policy are unlikely.
The US Dollar currently hovers near the weekly low touched following softer US Producer Price Index (PPI) data earlier this week. The forthcoming CPI data could bolster the USD's strength, yet any significant monetary policy shifts by the Federal Reserve are not anticipated in the short term.
Analysts at TD Securities provide insight into the expected CPI performance:
"We look for core inflation to step down a touch after four reports where it printed firmer 0.3% m/m expansions. We expect goods deflation to act as a key drag, helping to offset a likely rebound in housing inflation. On a y/y basis, headline CPI inflation is expected to inch higher to 2.9% while core inflation likely closed the year unchanged at 3.3% y/y." – Analysts at TD Securities
In the broader economic context, the incoming Trump administration is poised to implement significant policy changes. These include a stricter stance on immigration, a more relaxed fiscal policy, and the reintroduction of tariffs on imports from China and Europe. These policies could potentially influence future inflation trends and the Federal Reserve's monetary policy decisions.
Market participants remain cautious, with expectations that the Federal Reserve may cut interest rates by just 25 basis points over the course of this year. This expectation reflects a nuanced approach to balancing growth with inflationary pressures.
Meanwhile, international comparisons show that December's UK CPI inflation fell slightly to 2.5% y/y, down from the anticipated 2.7%. This decrease highlights varying inflation dynamics across global economies, which may impact international trade and investment strategies.
As markets await the release of the December CPI data, attention remains focused on how these figures will shape economic narratives and influence financial markets. The upcoming report will play a crucial role in informing both policymakers and investors about the ongoing inflationary environment in the United States.