(Greenwich Merchant Bank): The U.S. Inflation rate ticked higher in December, though at a modest pace, fueled mainly by the rise in oil prices, which weighed on retail gasoline prices. Amidst the ravaging pandemic, shrinking job numbers, and weakened domestic demand, the headline figure settled at 1.4% YoY in December, after rising by 1.2% YoY in November.
On the back of this, average CPI rose by 1.4% in 2020, however, this points to a decelerating inflationary trend, when compared with the annual inflation rate of 2.3%. for 2019.
After two straight months of declines, gasoline prices, which shot up by 8.4% in December, reaped gains from slowing crude inventories and growing demand from top oil buyers. In a similar trend, food prices surged by 0.4%, following a 0.1% dip in November.
Increases in sub-indices like New motor vehicles (+0.4%), Apparels (+1.4%), amongst others, also contributed to the CPI advance. Core inflation, on the other hand, edged up MoM to 0.1%, from the prior +0.2%, as the index was held back by declines in the prices of Healthcare, Used cars and trucks, as well as Airline fares at 0.2%, 1.2%, and 2.3%, respectively.
Although, inflation sustained an upward trajectory, it is pertinent to note that the U.S. Fed’s inflation target is 2% using the core personal consumption expenditure (PCE) price index, which stood at 1.6% in November.
Nevertheless, with expectations of more stimulus packages and the recently approved relief of USD900bn signed off on the 27th of December 2020, Inflation might breach its 2% target, as these measures coupled with the Fed’s accommodative stance, should accelerate inflationary pressures.
An offset to this may arise from the increase in the new COVID-19 variant, such that if not effectively curbed, may result into the toughening of lockdown measures across the country, amid the slowing pace of vaccinations.
It was also a fairly mixed bag for the labour market, with unemployment pegging at 6.7% in December, despite the lost jobs of 140,000 in December, down from 245,000 gains registered in November. This bucked the seven-month growth trend, with the services sector bearing the most losses.
Notwithstanding, the expectation of widespread vaccinations and more fiscal stimulus package of about USD1.9trn as proposed by the newly elected administration should push for a broader economic recovery by the second half of the year.