US: Core CPI to rise further this year supporting three more rate hikes - ING

James Smith, Senior Economist at ING, points out that core inflation will continue to edge higher and he expects wage growth to rise too, making more likely that the Federal Reserve hikes rates three more times during 2018. 

Key Quotes: 

“The big news from today’s CPI data is that core inflation is now back above target at 2.1%. As has been telegraphed for quite some time, this is largely because a distortion related to cell phone data pricing has now dropped out the annual comparison.”

“Headline inflation picked up to 2.4% for the same reason, although was held back partly by an unseasonal fall in energy costs.”

“With the weaker dollar likely to drive prices higher over coming months (particularly as firms have the pricing power to pass these costs on in this strong economic environment), we think core inflation will continue edging higher this year. And with skill shortages intensifying in the jobs market, we’d expect wage growth to gradually rise too.”

“We think this makes it all the more likely that the Fed will hike three more times this year, although policymakers will also be watching closely to see how the recent trade escalations play out over the next few weeks.”