US: Inflation no longer a drag on the FOMC - ING

James Smith, Economist at ING , notes that inflation is not a massive concern for the FOMC and “certainly not a hindrance to a December hike.”

Key Quotes: 

“US inflation is not a massive concern for the FOMC. That’s the upshot of today’s CPI report, which showed that the headline continued to rise (to 1.6% YoY) and continues to converge on the core rate (now 2.1%) as the effect of earlier oil price weakness filters out. In fact, the transport component made the first positive contribution to the 12-month rate of inflation since 2014.”

“As this energy drag disappears, we expect the headline rate to hit the Fed’s 2% target in the second quarter of next year. If there is one criticism of the overall inflation picture, it is that price gains are not especially broad-based.”

“Our US CPI diffusion index has fallen below 50% in recent months, which indicates that less than half of the components in the CPI basket have risen over the past 12 months. Housing costs (mainly rent) have consistently made up the lion’s share of price rises – 1.2% of the 1.6% overall CPI figure came from housing costs.”

“Inflation is certainly not a hindrance to a December hike, nor indeed should it be a massive drag on the Fed’s plans for 2017”.