Morning from Europe!

We have a big inflation day ahead in the US and we see risks tilted towards a 3.9% YoY increase in core inflation (3.8% consensus)

Core inflation is trending around 0.3% MoM in the US and we see no reason for a sharp change in that trend given our price observations and models, and we only see a minor hawkish tilt in our models compared to consensus, but expect the MoM core inflation to print accurately above 0.3%. The consensus change for the MoM core inflation is very close to 0.25% given the expectation of 3.8% YoY inflation. Only a very minor surprise is needed to bring the YoY number to 3.9%, which we find likely.

Relative to the monthly inflation developments in November, ‘Used Cars and Trucks’ will be less inflationary, while ‘Commodities less food and energy commodities’ will not be a major disinflationary impulse. Transportation services is the “hawkish dark horse” as December is typically a firm month for that cost category.

We especially observe a price bump in public transportation and taxi/riding-share services in December. Transportation services will likely increase at least 0.8% MoM, rent of shelter will likely print around 0.38% MoM, while used cars will likely print around -0.3% MoM and the insurance cost rise is likely also material in December.

Food costs are likely to look soft, while energy is almost flat on the month. All in all, it has a slightly hawkish vibe, but the consensus is (for once) decently in line with reasonable observations and assumptions.

Chart 1: US CPI decomposed