US: CPI continues steady climb, key for 2017 Fed policy - Wells Fargo

Analysts from Wells Fargo see inflation as a key metric in 2017 for the determination of the monetary policy in the US. 

Key Quotes: 

“On top of solid monthly gains over the past three months, the headline Consumer Price Index (CPI) increased in line with expectations in November, rising 0.2 percent. Once again, higher energy prices played a role in the headline’s gain.”

“Excluding food and energy, the core CPI increased 0.2 percent in November following 0.1 percent rises in October and September (…)  On a year-over-year basis, core CPI has admittedly rolled over in recent months, but, at a 2.1 percent pace, stands supportive to where the Fed would like inflation to trend over the medium-term.”

“On the heels of yesterday’s FOMC meeting, we have the Fed’s latest thoughts on the current performance and outlook for inflation in the coming year. Officials continue to characterize consumer inflation as running below target, but in the same breath have acknowledged the recent marked upturn in market-based inflation expectations measures given the prospective policies that could be enacted next year with the incoming administration.”

“While the Fed’s updated inflation outlook did not change from September, it does reinforce officials’ confidence that inflation will continue to move toward the 2 percent target in the medium term. With many metrics considered at full employment, perhaps the most important source of rising inflation in the year ahead will be continued tightening in the labor market.”

“Rising wage pressures have been evident in recent months, providing solid momentum for the start of the new year, particularly for the labor-intensive service sector. The degree to which stronger wage pressures impact services inflation will likely be a key factor to the degree of acceleration in consumer inflation in the year ahead.”