Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 14 February 2018 at 6:01 GMT

US inflation is no game changer, but worth a closer look – #SaxoStrats

Head of Macro Analysis / Saxo Bank

  • US inflation is currently close to its target by most measures
  • We will need to gather more data about Q1 to know if inflation is an issue
  • What we really need to watch is the impact of oil prices on gasoline prices

By Christopher Dembik

US CPI and Core CPI will be published today at 1330 GMT. Rightly or wrongly, the release of this inflation data is considered a key market event.


US inflation is currently close to its target by most measures. PCE, which is the Federal Reserve’s preferred inflation measure, is running at an annual rate of 2%.

We also notice an upward trend for Cleveland 16% trimmed-mean CPI, Dallas trimmed-mean CPI and core PCE.

However, as we remember, in early 2017, inflation went up significantly due to the base effect before vanishing the rest of the year.
We will probably need to gather more data about Q1 to know exactly if the market is right to worry about inflation.


US consumers are not too concerned about inflation at this stage, but the impact of crude oil prices on gasoline prices at the petrol pump is a key issue to watch. Photo: Shutterstock

What we really need to watch is the impact of oil prices on gasoline prices.

So far, consumers haven’t seemed too concerned about rising inflation. Inflation expectations measured by the University of Michigan are quite stable (around 2.5% in January) but the US break-even inflation rate (5-10 year forward) has moved up quite significantly over the past three months (currently at 2.1%), which is the highest level since June 2015. 

This is certainly some kind of adjustment BUT it does not mean that inflation will become an issue in the coming months.
There has lately been a strong focus on higher wage rates in the USA. Actually, the surge observed in the last data partially reflects the impact related to the reduction of hours worked due to bad weather. In fact, wages growth is lower than before the global financial crisis in the USA, but also in most of the developed countries (except for Germany).  
Yes, inflation is slowly coming back. In the G7 countries, as you can see below, the mean is at 1.7% BUT it is slightly lower than in February 2017 (1.8%). 

Inflation is not a game-changer for the market and inflation will certainly remain low compared to previous periods due to structural factors that SaxoStrats often mentions (such as ageing, new technologies, etc).


– Edited by Gayle Bryant

Christopher Dembik is head of macro analysis at Saxo Bank
14 February
Dembik Christopher Dembik Christopher
As mentioned in the analysis, it is too early to draw conclusion. Inflation data are quite volatile and we need to gather more statistics to have an exact idea of where inflation is heading to. Key point: CPI is also heavily impacted by oil prices.
I think there is no reason to fear an inflationary shock. Global inflation (38 countries representing almost 80% of global GDP) is around 1.8%...


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