The US consumer price index (CPI) remained flat, falling short of expectations, but core CPI rose by 0.2%, beating expectations. Both were expected to tick up by 0.1%. The year on year CPI was expected to advance from 1% to 1.3%, and it stands at 1.2%, while annual Core CPI, watched closely by the Fed was predicted to remain unchanged at 1.7% and indeed remained at this level. This is close to the 2% target and far from deflation.
Currencies remain steady after the release, with EUR/USD moving 15 back up in the range after falling beforehand. USD/JPY is trading just under 103. Markets anxiously await the FOMC decision tomorrow.
The US also published its current account numbers: the deficit fell in Q3 to 95 billion. It was expected to rise from 99 billion in Q2 to 101 billion now. This is also a positive for the US.
CPI analysis – no hurdle for QE tapering
Low levels of inflation have been a concern in various countries: the ECB cut the rate due to a fall in inflation, and the pound suffered a downfall due to a small miss in its level. Also the Bank of Canada expressed concern.
In the US, a low level of inflation could lower the chances of QE tapering. Fears of deflation are what triggered the second round of QE. The third and current round is related to employment. With a level of 1.7%, inflation does not seem like a big concern.
Further reading: The Fed Taper Is Almost a Dead Certainty – But May Not Trigger a USD Rally Yet
More: Why the Fed is unlikely to change forward guidance thresholds
In addition, here are 11 reasons for QE tapering in December.
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