US inflation: Are we there yet? - ANZ

Research Team at ANZ, suggests that after slicing and dicing US inflation figures 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.”