US CPI Showing Some Strength

Alan Penny

13 November 2019

2 min read

USD forex trading

  • US Consumer Price Index higher than expected
  • Core CPI as expected
  • Continues to show signs of strength in America

The US Consumer Price Index was released during the trading session on Wednesday, coming out stronger than anticipated. This shows there is a certain amount of resiliency in the United States, especially when compared to the rest of the world.

With that being the case, it should continue to drive the US dollar higher in general. However, the reaction was initially a bit muted, which should not be a huge surprise considering the Congress was starting Trump’s impeachment hearings process.

Beyond that, Jerome Powell was also speaking, so that’s yet another reason to think there might be a slight dampening effect.

The numbers

The numbers that were released were either better or as expected. The straight Consumer Price Index figure came out at 0.4%, as opposed to the expected 0.3%, which is obviously a good sign for inflation. It also shows there is strength to be had in America, and that is going to be reflected in the currency markets as well as the stock markets.

However, Core CPI was released as expected at 0.2%, so the overshoot could have been a slight anomaly based on specific sectors in the economy.

This will be greatly scrutinized over the next several months, as the United States is by far the most productive economy at the moment.

Going forward

Going forward, it’s very likely that inflationary numbers will be watched closely, as the central bank is monitoring whether or not there is a need to loosen monetary policy further.

At this point, the Federal Reserve is likely to stay on the sidelines. But if we continue to see larger numbers like this, it’s possible that it will have to change its tone. That could actually be bad for stock markets as they are addicted to cheap money right now.

This is the one thing that has been driving stock markets higher that and buybacks, of course over the last decade or so.

Inflationary headlines will continue to be the most important thing to pay attention to when it comes to the Federal Reserve. Unlike other central banks around the world, the Federal Reserve is not necessarily looking to loosen monetary policy. It could find itself in the position yet again to be the only one to tighten monetary policy.

Inflationary headlines will continue to be the most important thing to pay attention to

We are a far cry from having that happen, but the fact that the CPI numbers came out stronger than anticipated does at least give us a baseline to compare to, going forward.

If we continue to see a strengthening economy, this will continue to make the case for the Federal Reserve to normalize rates. At this point, the fact that the US dollar is getting close to breaking through another barrier against the euro shows just how skewed growth is.

Written By
Alan Penny

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