Inflation Slowdown, Core CPI Surprise, and Forex Market Outlook

Inflation is moving faster than the days themselves, and today’s market data sheds light on where we’re heading. The U.S. core CPI figures were released, surprising many, including me. The core CPI came in at 0.2%, lower than the expected 0.3%, while the regular CPI landed as anticipated at 0.4%. While the drop may seem minor, it’s an indication that inflation, though still sticky, is starting to slow down.  

Breaking Down the Numbers

The 0.2% core CPI figure shows a slight cooling in inflation. It’s not a huge leap, but every small dip matters in shaping the broader economic outlook. The normal CPI staying at 0.4% aligns with expectations, signalling that inflation remains persistent but manageable.  

What’s worth noting is the market’s response. The slow inflation decrease hints that the Federal Reserve is unlikely to cut rates in the first quarter. However, the possibility of a 25 basis point cut in the second quarter could shake things up.  

Trump’s Tariff Impact on Inflation

Trump’s tariff plans—25% and 60% tariffs—have added a layer of complexity to the market. While there’s been speculation that businesses might stock up on imports to avoid higher costs, the data suggests otherwise. Consumer spending during the holiday season, despite Christmas and New Year’s, was not as robust as in previous years.  

This trend indicates that inflationary pressures are affecting consumer behaviour. People are spending less, and the market is starting to reflect that restraint.  

Trump’s return to power next week adds another dimension to market expectations. His policies and potential trade restrictions could further influence inflation trends and economic strategies.  

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