November Consumer Prices, Dec. UI Claims, NY Fed, BOE

No Surprises from Today’s Data as We Wind Down Economics Publications for the Year

  • The November Consumer Price Index increased by 0.2 percent, boosted by energy prices.
  • Core CPI also increased by 0.2 percent, and was up 2.1 percent over the previous 12 months.
  • The Bank of England voted to maintain their key lending rate at 0.25 percent and continue buying assets.
  • Initial Claims for Unemployment Insurance fell by 4,000 to hit 254,000 for the week ending Dec. 10.
  • The Federal Reserve Bank of New York’s Empire State Manufacturing Index increased in December.

Consumer price inflation was moderate in November as the headline CPI increased by 0.2 percent, about as expected. Gains in energy prices countered declines in food and apparel. The energy prices index was up by 1.2 percent in November. According to AAA, the national average gasoline price increased to $2.226 per gallon for today, up from their November average price of $2.157, suggesting that energy will boost the Consumer Price Index again in December. Over the 12 months ending in November, the headline CPI is up by 1.7 percent, well above the 0.4 percent year-over-year gain from last November. We expect to see a gradual increase in crude oil and refined product prices through 2017. The recent production agreement by OPEC sets the stage for a rebalancing of global oil supply and demand by the end of 2017, as long as production caps are adhered to. The core CPI (all items less fuel and energy) increased by 0.2 percent in November. Over the previous 12 months, core CPI is up by 2.1 percent. House prices and rents are still going up consistently and this supports core price gains. However, some markets are increasing multifamily housing supply very quickly, suggesting that rents may not increase as much next year. Inflation indicators will be watched carefully by the Federal Reserve next year as they plan to accelerate interest rate hikes. We had one fed funds rate hike at the end of 2015 and one at the end of 2016. According to the Fed’s new dot plot, released yesterday, they expect to approve three 25 basis point rate hikes spread across eight FOMC meetings in 2017.

The Bank of England voted today to maintain their key lending rate at 0.25 percent and to continue their asset purchase program. Over the next year, as the Federal Reserve tightens monetary policy in the U.S., it will be very instructive to watch other central banks as they converge with, or diverge from, Federal Reserve policy. This will be meaningful for the value of the dollar relative to other currencies, and will be a determining factor in our trade balance and overall GDP growth. We expect to see more strengthening of the dollar in early 2017 as a result of divergent monetary policy.

Labor market indicators in December continue to look good. Initial claims for unemployment insurance fell by 4,000 to reach 254,000 for the week ending December 10. Continuing claims gained 11,000 to hit 2,018,000 for the week ending December 3. Regional manufacturing indicators are improving. The New York Fed’s Empire State Manufacturing Index climbed from mildly to moderately positive for December.

This will be the last daily economic alert that we issue this year. We will publish the Comerica Economic Weekly tomorrow for the last time this year. We are looking forward to some much needed holiday time with friends and family, and we hope that you can enjoy the same. We will be back in early January.

Market Reaction: Equity markets opened with gains. The 10-Year Treasury bond yield is up to 2.60 percent. NYMEX crude oil is down to $50.58/barrel. Natural gas futures are down to $3.53/mmbtu.

cpi-12-15-16

For a PDF version of this Comerica Economic Alert click here: cpi-12-15-16.

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