Monday, November 23, 2015

Fed is likely to achieve its inflation target – RBC CM

FXStreet (Delhi) – Research Team at RBC Capital Markets, notes that the US core CPI for October printed a firm +0.2% on the month and left the y/y pace at +1.9%–the 3-month run rate rose to +2.0% from +1.7%.

Key Quotes

“Critically, the internals were very strong, with our diffusion index of 15 categories printing a net +9 and the highest in 18 months. Keep in mind with the slated increases in subsidized health care premiums in 2016 (specifically Medicare part B), the gap between core PCE (which is at +1.3% y/y) and core CPI will close very quickly.”

“The health space is nearly 25% of the core PCE and the lack of premium increases in the subsidized space in recent years has kept this metric down relative to its CPI counterpart (which does not include the subsidized slice). The closing of this gap should further diminish the doves' argument that the Fed is coming up short on its inflation target.”

“The increase in Core CPI also came despite a very soft PPI for ex energy consumer goods. This further diminishes the idea of disinflation pass-through to the end user and suggests decent pricing power at that level. This is further confirmation that the US domestic strength narrative remains alive and well.”
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