US inflation surprises to the upside


January’s inflation figures were better than expected. Headline inflation reached 2.5% versus an expected 2.4%, whilst underlying inflation, which excludes food and energy, reached 2.3% versus an expected slowdown to 2.1%. Over the month, prices excluding food and energy rose 0.3% versus an expected 0.2%.

Headline inflation in 2015 was close to zero and reached 1.3% in 2016, but in recent months it has returned to levels close to underlying inflation. It is now accelerating more gradually and January’s strong readings are largely due to the most volatile components. However, housing prices, which make up almost a third of the basket of goods and services, remain on an upward trend having risen 3.5% in twelve months.


Oil price base effects have pushed headline inflation to accelerate sharply. Once these effects have diminished, it will likely converge towards the underlying rate. Both figures should remain underpinned by higher property related prices and wage rates.

The opinion expressed above is dated February 20th, 2017 and is liable to change

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