CPI Report Shows Accelerating Inflation But Some Signs of Cooling; Fed Likely to Maintain Hawkish Stance
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All Items CPI surprised to the upside, accelerating relative to last month. Core CPI was slightly higher than expected, accelerating slightly.
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Housing components were the main driver of core CPI acceleration. However, housing inflation is lagging and expected to decelerate going forward.
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Core services ex housing remain hot, worrying the Fed. Volatile items like used cars dragged core CPI down, possibly masking underlying inflation.
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Good news was broad disinflation in core goods. But the Fed remains concerned about rising energy prices potentially triggering more inflation.
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Overall the report was mixed. The Fed will likely maintain hawkish policy as CPI doesn't enable preemptive easing amid economic risks. Stocks and bonds reacted slightly negative.
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