Comments On The CPI Report - Christopher Vecchio, Currency Analyst For DailyFX
The October CPI reading came in higher than expected at +1.8% y/y versus +1.7% y/y expected, and while below the Fed's preferred +2% medium-term target, the components of the report support a more hawkish Fed. Inflationary pressures were present in all CPI subcomponents but for energy, which represented a -4.0% weight on the headline figure. While the Fed has expressed some concern over falling inflation expectations in recent months, there's no doubt that they're content with cheaper prices at the pump – it frees up disposable income to be used to finance other forms of consumption. Currently, the market is pricing in a September rate hike from the Fed – but if the employment rate continues to fall and inflation ex-energy edges higher, a Q2'15 rate hike should not be dismissed.