- 16 Jan 2025
- ICICI Securities
SOFTER CORE-CPI DATA STIRRED UP FED EASING HOPES
News: US inflation edged up in December but remain in line with market expectations. CPI on YoY basis increased by 2.9% in December 2024 after advancing 2.7% in November 2024. Core-CPI which excludes energy and food rose 3.2% in December after climbing 3.3% in November on yearly basis while on a MoM basis, it increased 0.2%. Indexes that increased in in December include shelter, airline fares, used cars and trucks, new vehicles, motor vehicle insurance, and medical care. Shelter prices, which comprise about one-third of the CPI weight, rose by 0.3% MoM but were up 4.6% from a year ago, the smallest 1-year gain since January 2022. The energy index declined by 0.5% for the 12 months ending December, and the food index increased 2.5% over the last year. Dollar and US Treasury yields fell as softer than expected core-inflation reading coupled with producer prices data not only reinforced expectation of more than 1 rate cut this year but also removed the rate hike expectation this year which market had started entertaining. US Dollar ended on the negative note losing 0.1% to 109.07, 10-year treasury note edged lower to 4.653% its largest daily fall since late November and 2-year treasury yield, which typically moves in step with interest rate expectations slipped to 4.266%.
Views: Data from US points progress in lowering inflation towards Fed target has started to stall which could lead to fewer interest rates this year. We expect US Fed to hit a pause button on easing policy in January meeting given President elect Donald Trump proposed plans for economy. We also expect US Fed to reduce rate only twice this year.
Impact: Positive