U.S. annual CPI likely to rise 2.2 pct in December, well above the Fed’s target

The United States consumer inflation for December is expected to be released on Wednesday at 13:30 GMT. Markets expect a 0.2 percent rise in the December CPI, coming back above the Fed’s target. Core (ex-food & energy) CPI inflation, of course, has been above the Fed’s target for more than a year.

The 75 percent drop in oil prices between mid-2014 and January-2016 pushed headline inflation below zero at one point and even as recently as July of last year it was still running at a lowly 0.9 percent.

Because once oil prices stabilised, headline inflation would come roaring back to meet the core. That’s now happening. West Texas crude prices ran sideways from April to November 2016 at $43/bbl and since then they’ve risen by another $9/bbl to $52-and-change, reported DBS Group Research.

From that lowly 0.9 percent y/y in July 2016, it rose 1.1 percent in August, 1.5 percent in September and 1.7 percent in November. Markets expect it will hit 2.1 percent today, a 4-tick jump in a single month. And all it took was for oil prices to stop falling, they added.