But there were also signs of simmering inflationary pressures on some parts of the economy. Headline inflation (core inflation plus food and energy prices) rose to 2.9% in December from 2.7% in November. Inflation increases at the end of the year and in the first quarter are not uncommon. As shown in Chart 1, inflation tends to trend upwards during this period due to annual price resettings and cold weather demand pushing up energy prices.
The Consumer Price Index (CPI) report released the week before Donald Trump’s inauguration as the US’s 47th president would have been welcomed and dreaded by his administration.
The report provided some comforting signals, including a decline in core inflation to 3.2% from 3.3% in the previous three months. Core inflation represents underlying price pressures on goods such as cars and services such as hospitality. This unexpected drop led to an immediate rally following a fortnight of market nervousness and short positions.
