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Inflation rebounded in the US in November as expected with the Consumer Price Index rising 0.2%. Discretionary items drove much of the increase, although many of these categories remain down year-over-year, explained analysts at Wells Fargo. They look for inflation to remain tame in the year ahead. 

Key Quotes: 

“The increase was slightly more than expected and pushed the 12-month change to a still-subdued 1.2%. The headline’s gain was held in check by a drop in food prices; grocery prices declined 0.3% last month and restaurant inflation eased.”

“Core inflation also rose 0.2%, despite the weakest print for primary shelter (shelter ex-lodging away from home) since 2010. Both rent of primary residences and owners’ equivalent rent (OER), which together account for about 40% of the core index, were unchanged on the month.”

“We look for inflation to remain tame in the year ahead and not meaningfully test the Fed’s new, higher tolerance level. The 12-month change in inflation should jump in the second quarter after the pandemic led to historic declines among a number of categories, which will offer favorable base effects this upcoming spring. But the roughly 2 ½ percent rate of core CPI in Q2-2021 is unlikely to last, and we expect it will be dubbed “transitory” by the FOMC.”