US CPI Increase Validates December Rate Hike Expectations

U.S. consumer prices increased in October after two straight months of declines as the cost of goods and services rose, signs of firming inflation that further support expectations that the Federal Reserve will raise interest rates next month.

The Labor Department said on Tuesday its Consumer Price Index increased 0.2 percent last month, reversing September’s 0.2 percent drop. In the 12 months through October, the CPI advanced 0.2 percent after being unchanged in September.

The modest increase in prices was in line with expectations and suggests that the drag on inflation from a strong dollar and lower oil prices was starting to ease.

Signs of stabilization in prices after a recent downward spiral are likely to be welcomed by Fed officials and give them some confidence that inflation will gradually move toward the central bank’s 2.0 percent target. Inflation has persistently run below target.

In the wake of a robust October employment report, the U.S. central bank is expected to raise its benchmark overnight interest rate from near zero at its Dec. 15-16 meeting.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza