Impact of stronger dollar on US price inflation will be temporary: Capital Economics

Quotes from Capital Economics:

- The 0.8% m/m decline in final demand producer prices in January took the annual PPI inflation rate down to 0.0%, from 1.1%. January's decline was principally due to a massive 24.0% m/m slump in gasoline prices, however, and isn't a sign that the US is at risk of a debt-deflation spiral.

- Admittedly, excluding food and energy, core prices fell by 0.1% m/m, but the annual rate of core PPI inflation was still as high as 1.6% last month. Moreover, that decline in core prices was, at least partly, due to the indirect impact of lower energy prices.  In particular, the 0.8% m/m decline in transport & warehousing services was due to a big drop in air fares and other public transportation costs. Otherwise, the biggest contribution to the decline in the core came from a 0.7%m/m drop in outpatient care prices.

- Finally, the stronger dollar appears to be having some impact too, with core final demand goods prices falling by 0.2% m/m. As with the drop in energy prices, however, the impact of the stronger dollar on price inflation will be temporary. Given that the Fed is targeting the inflation rate in one or two years' time rather than the current rate, this is not a reason to delay the first interest rate hike, which we expect in June.