US inflation: still below target - ANZ

In respect to US inflation, analysts at ANZ suggested that we have the reality that inflation has been, and still is, below target (for 51 months).

Key Quotes:

"The Fed’s preferred measure (PCE) sits at 1.6%. However, CPI figures paint a picture of a firming pipeline. Since April, the average monthly rise in the headline CPI has been 0.2% m/m giving an annualised CPI inflation rate of 2.4% so there is a case for getting on with it (particularly with unemployment around the NAIRU as well).

Core inflation was also a touch firmer in August (though some of that just reverses softness in July) rising 0.3% m/m. However, it’s still up 2.3% y/y. Services inflation (ex-energy) – which accounts for 60% of the CPI – rose 3.2% y/y as shelter costs rose 3.4% y/y and medical care costs rose 5.1% y/y. Inflation is a story of two halves: there is no inflation in goods prices but services tell a different story.

We see the CPI figures as not being enough for a September Fed hike, but leaving a December hike odds-on and bolstering the case for drawing some battle-lines, shifting the market away from liquidity driven support to the economic fundamentals. That’s an environment where volatility will remain elevated and tantrums regular."