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23 Feb 2015
US headline CPI expected to dive into negative territory – BBH
FXStreet (Barcelona) - The Brown Brothers Harriman Team forecast US headline CPI to dip to -0.1% yoy, which might spur concerns for the rate-liftoff by Fed, and further comments on the key drivers this week for US.
Key Quotes
“Headline US CPI is expected to slip into negative territory (-0.1%) on a year-over-year basis, with a 0.6% decline in January alone.”
“Such a report will likely spur speculation that the Fed cannot raise interest rates with negative headline inflation.”
“However, the key for policy makers is not headline inflation. They accept that the dramatic decline in energy prices dampens inflation, but its impact on prices is seen as transitory. By this time next year, the bulk of the impact will be dropped by the base effect.”
“The core rate, which in the US excludes food and energy, is more stable and is expected to be unchanged from the 1.6% paces seen in December.”
“Some link the likely downward revision in Q4 US GDP to below 2.0% from 2.6% and the fact that Q1 15 growth is looking soft (2.3-2.5%) to the dovish January FOMC minutes. We suspect this is a mistake and expect Fed Chair Yellen to correct this impression in her testimony before Congress.”
“What resonates with the Fed is not GDP, which as we all know is a flawed measure, but the fact that personal consumption rose 4.3% in Q4, the strongest in more than a decade.”
“Moreover, for those concerned about debt-financed consumption, revolving credit has barely grown. What will resonate with the Fed is that in the last three months the US created over a million jobs for the first time in nearly 20 years.“
Key Quotes
“Headline US CPI is expected to slip into negative territory (-0.1%) on a year-over-year basis, with a 0.6% decline in January alone.”
“Such a report will likely spur speculation that the Fed cannot raise interest rates with negative headline inflation.”
“However, the key for policy makers is not headline inflation. They accept that the dramatic decline in energy prices dampens inflation, but its impact on prices is seen as transitory. By this time next year, the bulk of the impact will be dropped by the base effect.”
“The core rate, which in the US excludes food and energy, is more stable and is expected to be unchanged from the 1.6% paces seen in December.”
“Some link the likely downward revision in Q4 US GDP to below 2.0% from 2.6% and the fact that Q1 15 growth is looking soft (2.3-2.5%) to the dovish January FOMC minutes. We suspect this is a mistake and expect Fed Chair Yellen to correct this impression in her testimony before Congress.”
“What resonates with the Fed is not GDP, which as we all know is a flawed measure, but the fact that personal consumption rose 4.3% in Q4, the strongest in more than a decade.”
“Moreover, for those concerned about debt-financed consumption, revolving credit has barely grown. What will resonate with the Fed is that in the last three months the US created over a million jobs for the first time in nearly 20 years.“