CPI figures in the US have been persistently low since falling significantly in 2011. The US Fed is keen to get the figures higher but the oil price has reached multi-year lows at under US$30 per barrel and inflation is remaining difficult to budge. In the days before the release of the latest inflation figures, local analysts thought the headline result was likely to remain unchanged.
The U.S Bureau of Labor Statistics released December CPI figures and the headline inflation rate came in at -0.1% for the month, a drop from November’s 0.0%, as energy and food prices fell. The year-to-date figure rose to +0.7%, up from November’s comparable figure of 0.5% but below market expectations of +0.8%. Core inflation, which strips out the more volatile food and energy components, rose 0.3% for the month and 2.1% over the last 12 months, up from November’s figure of 2.0%.
US bond yields were lower on the day as markets took little notice of the data and focussed on safe places in which to invest as equity markets were sold off and oil finished below $US27 per barrel. The yield on 2 year bonds fell 2bps to 0.82% and 10 year bond yields also fell 2bps to finish the day at 1.98%. In the US cash markets, the odds for an increase in the Fed rate at the January meeting are only at 10% while the odds of an increase at the March meeting have come down from 53% to 27% over the last month.
