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    US inflation edges up in October; dollar unmoved

    Annual inflation showed signs of picking up in the United States as the 12-month CPI rate increased to 0.2% in October from 0.0% in September. The figure was slightly stronger than the 0.1% rate expected by economists. On a month-on-month basis, prices were up 0.2% in October – the first rise in three months, which was in line with estimates.

    Core CPI, which excludes food and energy items, was unchanged at 1.9% on a yearly basis, while the month-on-month rate rose by 0.2% for the second straight month. Both figures were within estimates.

    Food items saw the smallest gain since May, rising by 0.1% over the month. Energy prices were up by 0.3% after September’s big drop of 4.7%. But on an annual basis, energy prices were still down by 17.1%. Gasoline prices rose for the first time in three months, increasing by 0.4% from the previous month. Prices of new and used vehicles saw monthly declines but the cost of medical care services increased by 0.8%.

    Today’s slightly stronger than expected data might provide some assurance to the doves within the Fed that consumer prices in the US are on a firm path upwards. The strong dollar and weak commodity prices have kept the headline CPI close to zero since the start of the year despite solid jobs gains throughout the year that have pushed unemployment down to 5%. The tightening labor market has been the main concern for the Fed hawks who argue that wage growth could accelerate in the coming months, putting upwards pressure on prices.

    After some mixed signals from the Fed post the September FOMC meeting, policymakers have since the October meeting sounded a more converged tone that the time for a rate hike is nearing, increasing the odds for a December lift-off. October’s strong payrolls numbers and better-than-expected inflation data only add support to that view.

    The dollar saw limited reaction to the CPI numbers and stuck within the day’s trading range against the yen. It was last trading at 123.30 yen in late European trading. The euro also had a muted response to the data but firmed slightly to 1.0672 dollars in late European session. The only mover was the pound which strengthened after the UK released its own set of positive inflation data. Cable jumped from 1.5154 to 1.5212 after the UK data and fell back to 1.5197 on the US inflation numbers, but it later extended its rally to climb to 1.5228.

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