US Core Consumer Price Index (CPI) MoM - Visual Analysis

US Core CPI is one of the most highly anticipated indicators on the economic calendar. The Fed uses CPI data as its main source of information on consumer inflation. As the Fed’s main objective is to control price stability through interest rates, CPI data is seen as a good indicator of future interest rate changes.

Core CPI data from the US excludes the food and energy items, which make up about 25% of the total CPI figure. Food and energy are seen as volatile and seasonal so the Core figure is regarded as a more accurate look at the current inflationary environment.

Traders should expect high market volatility around CPI announcement time and it should be noted that any deviations from market consensus can be met with large price fluctuations across the board in the US Dollar.

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US Core CPI MoM Data

November 19 2008:	US CPI Falls by Record Amount in October - Core CPI also Down
October 08 Update:	Post-release: US September Core CPI Up 0.1%, Smallest Increase Since February
September 08 Update:	Post-release: Core CPI up 0.2% as Expected - Headline CPI down 0.1%, First Drop Since 2006
July 08 Update:	Post-release: US Consumer Inflation hit levels not seen in 26 years, the CPI report confirmed today. CPI came in at 1.1% MoM wich is the strongest increase since 1982. This lifts the YoY rate to 5%, 0.5% higher than expectations and the highest level since 1991. The Core CPI was also higher than expected, coming in at 0.3% MoM. The yearly Core rate now stands at 2.4%. Pre-release: Economists remain divided ahead of today’s Core CPI announcement from the Bureau of Labor Statistics. Some feel that weak growth in areas such as clothing will put negative pressure on the data, possibly sparking a reading of 0.1%. However, there is also a movement that feel the rise in commodity prices is due to manifest itself in all areas of the economy, which would push the core rate to 0.3% for June. The main topic of conversation remains the Fed’s assessment of the data. Will the Fed see any commodity inflation spillover into the wider economy? And even if they do is the US economy too weak to cope with an interest rate hike?
June 08 Update:	Post-release: As expected, energy and food prices pushed consumer inflation much higher in May. However, minus those items, Core CPI came in as expected at 0.2% MoM, 2.3% YoY. With the raw CPI yearly rate now sitting at 4.2% it seems more feasible for the Fed to switch its focus from Core CPI to the raw data when considering interest rates. Indeed, some economists are already expecting a rate hike from the Fed in August. Today’s data, along with rate hike expectations helped the Dollar to close out the week in a strong position against the World’s major currencies. Pre-release: Recent market focus has been on soaring commodity prices and the effect this inflation is having on the consumer. Speculation is rife that the Fed may begin to increase interest rates in August to combat the problem. However, the Fed lacks the tools for dealing with the global price of food and energy, the main sources of this inflation. The worst-case scenario is that the Fed has to deal with a contracting economy and rapid inflation. The Core reading (minus food and energy) is expected to increase by 0.2% MoM, 2.3% YoY for the month of May. This seems fairly tame in the face of a projected 9% MoM increase in the price of gasoline (before seasonal adjustment). But the Core CPI is still above the Fed’s target of 2.0% and has been for some 44 months.
May 08 Update:	Post-release: Seasonally adjusted, Core CPI rose by just 0.1% in April compared to the 0.2% that had been expected. This brings the yearly rate to 2.3%. Cooling inflation eases the pressure on the Fed to hold rates at the next meeting. Some economists have said that this opens the gates for further cuts in June. However, an alternative view is that inflation is merely pausing for breath. With inflation in the energy and food sectors trending higher it may be beneficial to look at the full CPI when setting rates. Of course the Core CPI is traditionally used because the omitted items are regarded as volatile, rather than trending in nature that we are seeing at the moment. Pre-release: Consumer Price Inflation is expected to remain unchanged for April with the Core rate at 0.2% MoM, 2.4% annualized YoY. The market consensus is for the Fed to hold interest rates at the June meeting. With this in mind it will take a large deviation in the Core CPI to change Fed thinking.
April 08 Update:	Post-release: The Core CPI reading for March fell in line with consensus estimates for a 0.2% increase MoM. This brings the seasonally adjusted annual rate to a 2.0% rise in the first quarter of 08. Unadjusted, the annual rate stands at 3.1% in Q1. Elsewhere US Housing Starts and Building Permits came in lower than expected at 0.95M and 0.93M respectively. This represents a month-over-month drop of 11.9% in Housing Starts with single-family starts at 680K, a level not seen since 1991. Today’s data has offered little support to the US Dollar with markets already pricing in a 0.25% interest rate cut at the next meeting. Pre-release: Core CPI for March 08 is expected to rise 0.2% MoM (2.4% YoY) on Wednesday. This data follows a below trend February where inflation growth was flat at 0.0%. Below average medicine and clothing prices were to blame in Feb and economists will be keen to see them rebound. Traders will be watching closely as they price up the odds of a 0.50% to 0.25% interest rate cut from the Fed at the next FOMC Meeting.
Feb 08 Update:	Post-release: Core CPI (excluding food and energy) for January rose 0.3% compared to 0.2% expected. The figure was boosted by healthcare (up 0.5%) and transportation (0.5%). This leaves the unadjusted Core YoY rate at 2.5%, the highest for some 11 months. There is no comfort for the US consumer in seeing prices increase. Real average weekly earnings (adjusted for inflation) fell 0.5% in January. The Fed is worried about increasing prices, decreasing income and the effect this could have on economic growth. The market is already pricing in another 0.50% cut in the March FOMC meeting. Pre-release: On Feb 20th we will see the release of the January Core CPI MoM data from the US. The data falls during a period where caution over recession is dominating market sentiment. Never the less the Core CPI figure is expected to remain firm at 0.2% inflation growth MoM. With eyes fixed on the FOMC meeting minutes later the same day it is unlikely that the US Dollar will react too strongly to the data, unless a reading of 0.0% or 0.4% is seen. The former will increase fears over US economic slowdown and may prompt predictions of negative growth before the year-end. However, the latter will ease fears of recession but is unlikely to put off expected future rate cuts.

US Core CPI MoM
2008	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Forecast	0.2%	0.2%	0.2%	0.2%	0.2%	0.2%	0.2%	0.2%	0.2%	0.1%
Actual	0.3%	0.0%	0.2%	0.1%	0.2%	0.3%	0.3%	0.2%	0.1%	-0.1%
2007	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Forecast	0.2%	0.2%	0.2%	0.2%	0.2%	0.2%	0.2%	0.2%	0.2%	0.2%	0.2%	0.2%
Actual	0.3%	0.2%	0.1%	0.2%	0.1%	0.2%	0.2%	0.2%	0.2%	0.2%	0.3%	0.2%

Revised Higher - Revised Lower

* Please note that the date relates to the reporting period, not the release date. i.e. Data released in January is reporting CPI for the month of December, data released in February is the January number and so on. Therefore data will always appear to be one month ‘behind’.

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