The annual rate of US consumer inflation has dropped from nearly 3% in July 2018 to well below 2% over the last couple of months. At the same time, core inflation has been much less volatile and it has ranged between 2.10% and 2.30%. In recent times, differences between the two have mostly been caused by changes in gasoline (petrol) prices.
Consumer price index (CPI) figures released by the Bureau of Labor Statistics indicated seasonally-adjusted consumer prices remained unchanged in January, less than the consensus figure of +0.1 but the same as December’s revised figure. On a 12-month basis, the consumer inflation rate slowed to 1.5% after recording 1.9% in December. The primary driver of the fall was another substantial fall in gasoline prices.
“Core” inflation, a measure of inflation which strips out the volatile food and energy components of the index, increased on a seasonally-adjusted basis by +0.2% for the month, in line with expectations. The annual rate remained unchanged at 2.2%.
Markets reacted by sending US bond yields higher. By the end of the day, 2-year Treasury yields had ticked up 1bp to 2.53%, 10-year yields had increased by 2bps to 2.70% and 30-year yields had gained 1bp to 3.03%.