Lower gasoline prices likely to drag US headline CPI in near term

Retail gasoline prices is expected to drag US headline CPI longer than expected earlier in the near term, based on lower gasoline futures price.  Barclays have revised its US CPI forecast profile from its previous update. The gasoline futures curve has steepened since January-end, with contracts for delivery through October 2016 lower in price.

"We now expect CPI inflation to bottom out at 0.2% y/y in July 2016 and then rise swiftly into early 2017, reaching 2.6% y/y by the end of next year", says Barclays.

The core CPI forecast is the same. The past appreciation of the trade-weighted dollar is expected to result in lower import prices and drive several consumer goods categories to cheapen in the country in the coming months. Lower core goods prices will result in a dip in the annual rate of core CPI inflation in the following months to a low of 1.7% y/y in June 2016. The core CPI forecast faces some upside risk due to the recent considerable dollar depreciation. Higher services prices are likely to drive an uptrend in core inflation after midyear.

"For the January release, we forecast consumer prices to have fallen 0.1% m/m (sa), with lower energy prices offsetting a modest 0.1% m/m (sa) rise in core CPI. We look for the annual rates of headline and core CPI at 1.2% and 2.0%, respectively. We forecast the CPI NSA index to print at 236.6", says Barclays.