27 Feb 2015
CPI data pushes policy divergence in favour of USD – BTMU
FXStreet (Barcelona) - Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, explains that US CPI might have fell into negative territory but services inflation for which wages is a key component climbed to 2.5%, which only favours the dollar-boosting policy divergence.
Key Quotes
“The dollar advanced notably yesterday, in particular versus the euro on a day when the divergence in policy outlook was reinforced by data suggesting little evidence of underlying deflation in the US.”
“The CPI report for January did show a drop in the annual rate to -0.1% fuelled by a 0.7% m/m drop. The annual energy CPI rate fell from -10.6% to -19.6% accounting for the bulk of the drop in the overall annual rate."
“.. services inflation, excluding energy, actually accelerated from 2.4% in December to 2.5%.”
“With the economy strengthening in the US it is hard to believe that a broader episode of disinflation or deflation is around the corner.”
“A key component of services inflation is owner equivalent rents and with vacancy rates in the US now close to long-term average levels, OER is slowly being pulled higher too. Wages are another key ingredient and with the labour market now removing spare capacity, wages are beginning to drift higher.”
“It is the labour market that is the one big difference between the US and the euro-zone and why the monetary policy divergence that is driving the dollar stronger is set to continue throughout 2015 and into 2016.”
Key Quotes
“The dollar advanced notably yesterday, in particular versus the euro on a day when the divergence in policy outlook was reinforced by data suggesting little evidence of underlying deflation in the US.”
“The CPI report for January did show a drop in the annual rate to -0.1% fuelled by a 0.7% m/m drop. The annual energy CPI rate fell from -10.6% to -19.6% accounting for the bulk of the drop in the overall annual rate."
“.. services inflation, excluding energy, actually accelerated from 2.4% in December to 2.5%.”
“With the economy strengthening in the US it is hard to believe that a broader episode of disinflation or deflation is around the corner.”
“A key component of services inflation is owner equivalent rents and with vacancy rates in the US now close to long-term average levels, OER is slowly being pulled higher too. Wages are another key ingredient and with the labour market now removing spare capacity, wages are beginning to drift higher.”
“It is the labour market that is the one big difference between the US and the euro-zone and why the monetary policy divergence that is driving the dollar stronger is set to continue throughout 2015 and into 2016.”