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U.S. overall headline inflation slows down slightly in November, Fed likely to hike rates next week

The overall consumer prices came in flat in November, owing to a big fall in energy prices. This is in line with expectations. The headline inflation eased to 2.2 percent year-on-year from October’s 2.5 percent. Energy prices dropped 2.2 percent in November, driven by a 4.2 percent decline in gasoline prices. Food prices were up 0.2 percent in November, but year-on-year food inflation rose just 1.4 percent.

Core rate, which excludes food and energy prices, rose 0.2 percent, in line with the median consensus estimate. Looking at the details, indexes for shelter, used cars and trucks, medical care, recreation, and water and sewer and trash collection all rose. Leaning against this were lower prices for wireless telephone services, airline fares and motor vehicle insurance.

On a year-on-year basis, core inflation rose to 2.2 percent from 2.1 percent. Core inflation has rebounded between 2.1 percent and 2.4 percent in the last nine months. There appeared to be little move in underlying goods & services trends. Core services inflation continued to be stable at 2.9 percent, while core goods inflation continued to be in deflationary territory.

The easing in momentum in headline inflation was expected, given the fall in the oil price in recent weeks. According to a TD Economics research report, inflation is expected to move higher in the year ahead, but not dramatically so. A tight labor market is pushing up wages, and these are expected to show up in services prices.

“The Fed's final rate decision of 2018 is next Wednesday, and a quarter point rate hike is largely a done deal. However, looking ahead to next year, we expect only two more rate hikes will be required to keep inflation on target”, added TD Economics.

At 15:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at 28.0902. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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