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US INFLATION: December CPI Preview: Housing, Core Goods Are Focal Points (2/2)

US INFLATION
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Likely to be the single most closely watched individual aspect of Wednesday’s CPI report, rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December. This of course follows the surprisingly sharp moderation to a weighted average of 0.23% M/M in November, the first month this cycle that monthly rental inflation has been below its pre-pandemic average of 0.27% (it last tied with this 0.27% increase back in June before surprisingly surging to 0.47% M/M in Aug). 

  • This previous moderation was significant. Housing has previously appeared to us to be the main stumbling block in the return to the inflation target. With the labor market increasingly looking like it won’t be a source of inflationary pressure in the near-term (even more so after productivity revisions), supercore inflation should start to take less precedence.
  • However, the housing inflation data are volatile month-to-month, not least because of methodological quirks such as sample rotation, and its hard to read too much into any single month. Some analysts point to seasonal factors flattering SA housing inflation compared to the NSA version.
  • A further soft (~0.2% M/M) reading would be a notably dovish outcome in our view. 

Watching Core Goods After Recent Rare Strength Prior To Potential Tariffs

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Likely to be the single most closely watched individual aspect of Wednesday’s CPI report, rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December. This of course follows the surprisingly sharp moderation to a weighted average of 0.23% M/M in November, the first month this cycle that monthly rental inflation has been below its pre-pandemic average of 0.27% (it last tied with this 0.27% increase back in June before surprisingly surging to 0.47% M/M in Aug). 

  • This previous moderation was significant. Housing has previously appeared to us to be the main stumbling block in the return to the inflation target. With the labor market increasingly looking like it won’t be a source of inflationary pressure in the near-term (even more so after productivity revisions), supercore inflation should start to take less precedence.
  • However, the housing inflation data are volatile month-to-month, not least because of methodological quirks such as sample rotation, and its hard to read too much into any single month. Some analysts point to seasonal factors flattering SA housing inflation compared to the NSA version.
  • A further soft (~0.2% M/M) reading would be a notably dovish outcome in our view. 

Watching Core Goods After Recent Rare Strength Prior To Potential Tariffs

Keep reading...Show less