Inflationary pressures in the United States remain contained, at least according to official measures, pointing to the potential for further interest rate cuts from the Federal Reserve.
Core consumer price inflation rose 0.1 per cent for the month and 2.3 per cent for the year in December, the former undershooting economist expectations for a slightly faster increase of 0.2 per cent.
“While much of the weakness was driven by the volatile components of used cars and airfares, the data does highlight inflation remains subdued in the US,” NAB economist Tapas Strickland wrote.
Mr Strickland says the soft print points to downside risks for core PCE inflation, the Fed’s preferred measure of price pressures across the economy.
“[It suggests] core PCE inflation has slowed to a 1.5 per cent pace, down from 1.6 per cent in November and well below the Fed’s 2 per cent inflation target,” he said. “With inflation continuing to under-club, the risk remains the Fed may need to cut on the inflation outlook alone even if the growth outlook has become more positive.”
Markets are currently 90 per cent priced for the Fed to deliver a further 25 basis point rate cut by the end of the year.