US inflation provides hawks with evidence for hikes

15th October 2015 By: Ranko Berich

US Inflation – 15/10/15

The US dollar has been battered recently, as markets have discounted the prospect of US rate hikes in 2015. However, today’s upside surprise on core inflation comes during a critical time for monetary policy.

Despite the debate going on between hawks and doves in the FOMC, rate hikes this year is exactly what today’s inflation figures would suggest is appropriate. Although headline inflation remains low, once food and energy are removed, core inflation is fairly healthy at 1.9 per cent year-on-year.

An insurrection is occurring in the FOMC at the moment, led by Lael Brainard. She argues that inflation is too low and rate hikes this year are too risky for the economy. However, today’s data will be red meat for the other side of the argument, which believe the US economy remains in decent shape, and that once shocks to fuel prices are taken into account underlying inflation is fairly robust.