It seems that inflation will enter 2022 with a significant acceleration. In the realization in December, we observed that the headline CPI recorded the highest rate after 1982 with 7%. The Fed put the concerns about the acceleration in inflation on its agenda more intensely, and accordingly, the expectations for its aggressiveness in tightening and a steep start in March increased. Clearly, there is a wide range in the medium-long-term perspective of inflation, which is certain to remain high in the short-term. At least at this stage, we can say that we are lacking in seeing signs of a decrease in inflation. Global supply shortages and energy-related problems continue to be at the center of cost inflation.
Comparison of US headline and core CPI… Source: Bloomberg
While the main driver of inflation will be oil and related costs in January, we see that energy is not the only problem on a broad level. The significant upward trend in durable goods and services continues. The increase in vehicle prices was the driving force in the core CPI, which was 5.5% in December. The effect here may soften a little compared to last month. On the service side; Effects such as input effect, higher worker wages may cause seasonal price increases to accelerate. The fact that the supply side is still not keeping up with the demand and the effect of the Omicron variant will still cause us to see a significant inflation of goods.
In today's data, we will try to understand whether the Fed will start with 25 bps or 50 bps in March. If we take any hard data, the Fed is likely to raise interest rates by 50 basis points in March, and it will move into the pricing phase. The fact that the Fed remains in the 25 bps rate increase standard is perceived as more dovish at this stage. Therefore, for data to be market-friendly, it would need to come in a trend that does not add up to current levels or expectations.
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