On the core inflation side, where volatile items such as food and energy are excluded, there are 0.1% and 1.6% monthly and annual increases, respectively. Market expectations were 0.4% and 1.3% monthly and 1.3% in the headline CPI, and 0.1% and 1.6% monthly and 1.6% in the core CPI.
When we look at the sub items; The seasonally adjusted increase in the all items index stemmed from the 8.4% increase in the gasoline index, which accounts for more than 60% of the total increase. Other components of the energy index increased by 4% during the month. The food index also rose by 0.4% in December. The food index increased by 3.9% in the last 12 months, while the energy index fell 7%. Clothing, motor vehicle insurance, new vehicles, personal care and household goods indexes all rose in December. Used cars and trucks, entertainment and medical care indexes were among those that fell during the month.
Inflation is expected to be higher in 2021 in line with the greater cost burdens that will occur when the disruption in the supply chain and demand conditions stabilize. Although December PMI data showed a sharp increase in selling prices, the pace of cost inflation remained well above wages as firms tried to partially absorb price increases and further increase sales. The inflation rate does not include any risk and change requirement in terms of the Fed’s average strategy of 2%. Although the recent upward movement in inflation expectations has fueled the timing debate over the Fed’s tapering, demand should support price pressures.
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