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US Consumer Prices Exceed Expectations, Surpassing Forecast for Lower Inflation

The Consumer Price Index (CPI) rose by 3.4% in the year ending in December, marking the highest increase in three months, as reported by the Bureau of Labor Statistics (BLS). Month-over-month, headline inflation increased by 0.3%, exceeding the expected rise of 0.2%. This surge was primarily driven by higher fuel and energy costs, alongside a 0.5% increase in shelter inflation.


Core inflation also exceeded expectations, with a 0.3% month-over-month increase and an annual rate of 3.9%. Notable price hikes were observed in used cars and apparel, with insurance costs experiencing their highest annual increase in 40 years.


Our Take: The recent CPI figures serve as a clear indication that inflation risks are not one-dimensional, particularly in light of the significant easing of financial conditions in recent weeks. The Federal Reserve will likely require further evidence of economic softening before justifying more than the signalled 75 basis points easing in the dots.


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