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Investors brace for the highest inflation reading in nearly 40 years


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If the consensus is correct, the last time inflation was this high was in the early years of the Reagan administration – as the U.S. found itself amid a steep and persistent recession.

The Labor Department on Friday morning will release November’s consumer price index, a gauge that measures the cost of dozens of items. The index covers common goods including gasoline and ground beef, but extends into more detailed purchases such as frozen vegetables, indoor plants and flowers and pet supplies.

Full article on CNBC

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SUMMARY
In the United States, the core inflation rate tracks changes in prices that consumers pay for a basket of goods which excludes volatile food and fuel costs.
 
In the United States, unadjusted Consumer Price Index for All Urban Consumers is based on the prices of a market basket of: food (14 percent of total weight), energy (9.3 percent), commodities less food and energy commodities (19.4 percent) and services less energy services (57.3 percent). The last category is divided by: shelter (32.1 percent), medical care services (5.8 percent) and transportation services (5.5 percent).
 
Inflation Rate MoM measures month over month change in the price of goods and services.
 
 
13:30 UK Time
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USD Dips, Gold Picks Up on 40yr High Inflation Having Matched Estimates.

 

USD, CPI Price Analysis & News

  • US CPI at 40yr High, Matching Estimates
  • USD Drops In Response Given Expectations for Upside Surprise

U.S. Consumer Sentiment Sees Small Gains Through Holiday Season

US CPI Hits 40yr High Matching Expectations

DATA RECAP: The headline rate rose 0.8% on the month, taking the yearly rate to 6.8%, in which the headline rate printed in line with expectations. The core readings also matched estimates at 0.5% m/m and 4.9% y/y. Once again, the more sticky components such as shelter costs rose 0.5%, further underscoring the recent decision by Chair Powell to retire the word transitory, when discussing inflation.

US Inflation Components

USD Dips, Gold Picks Up on 40yr High Inflation Having Matched Estimates

Source: BLS

How to Trade After a News Release

MARKET REACTION: Now while the headline was a near 40yr high, given that President Biden noted that the November data will not reflect the lower energy costs, traders had geared for a slightly firmer than expected number. Therefore, meaning that an in-line print would be a disappointment for USD bulls. That being said, this is only a short term move and with the FOMC next week, I would be surprised whether there would be a fully-fledged pullback in the greenback and thus expect dips to be bought.

However, the data provides a reminder that when trading economic data, the most important factor for markets is “how does it compare to expectations”. It doesn’t matter if its extremely high, low or the same as the prior month or year, what matters is how the data deviates from expectations.

USD, US RATES & GOLD REACTION TO US CPI

USD Dips, Gold Picks Up on 40yr High Inflation Having Matched Estimates

Source: Refintiv

By Justin McQueen, Strategist, 10th December 2021. DailyFX

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