US: Headline CPI inflation likely rose 0.4% in December - Nomura

Analysts at Nomura believe that the US non-gasoline energy prices likely rose in December, but at a slower pace than gasoline prices, which increased modestly by 4.6% on a seasonally adjusted basis in the month.

Key Quotes

“As such, we expect a 2.3% m-o-m gain in the aggregate energy prices of the CPI. On food prices, it appears that both food-away-from-home and food-at-home prices increased at a solid pace of around 0.2% m-o-m. Although food-at-home prices (food prices at grocery and supermarket stores) had declined for seven consecutive months until November, the PPI’s price index for finished consumer goods showed a back-to-back increase in December, suggesting some stabilization of food-athome prices. As for the food-away-from-home prices (restaurant menu prices), the other subcomponent of food prices, the recent tightening of labor markets for restaurant industries points to a solid increase in this metric in December. Altogether, our forecast for aggregate food prices is a 0.2% m-o-m increase.”

“Excluding food and energy prices, we expect core CPI rose by 0.2% (0.215%) m-o-m in December (Consensus: 0.2% m-o-m), a slight acceleration from 0.151% in November. If realized, this would represent 2.2% y-o-y growth, a 0.1pp increase from 2.1% in November. Drilling down, core goods prices likely fell again in December, given imported consumer goods prices fell relatively sharply in the month. However, firming core service prices likely offset the softness in core good prices. Among core service prices, we expect airline fares to have jumped strongly in the month. Based on ticket price data, air fares appeared to have increased by about 3.0% m-o-m on a non-seasonally adjusted basis. Yet, the seasonal fluctuation in air fares in November and December suggests that seasonal adjustment should amplify the month-on-month increase. Considering the impact from seasonal adjustment, we expect a strong 8.8% m-o-m rise in air fares, adding 7bp to our core CPI inflation forecast. Excluding airline fares, core inflation would have been little changed.” 

“Combining our expectations for non-core and core components, our forecast for headline CPI inflation is 0.4% (0.361%) m-o-m, or 2.2% y-o-y (Consensus: 0.3% m-o-m). As for CPI NSA, we expect 241.674 (Consensus: 241.535).”