Fuel ( 2.1% m/m and 50.1% y/y), transportation services ( 1.5% m/m and 11.2% y/y) and used cars ( 7.3% m/m and 29.7% y/y) have yet to run out of steam, while apparel prices ( 1.2% m/m and 5.6% y/y) have already started to lift of.
We must not forget the experience of 1970 when individual group price spikes following each other triggered cumulative inflation the Fed was too slow to react to.
Interestingly, however, the initial market reaction was the opposite of the norm: USD came under pressure, and major equity indices rose. These purchases of risky assets could intensify further if the Fed’s comments confirm the transitory nature of inflation. It is now worth keeping a close eye on developments on the US debt market, where rising yields promise to benefit the dollar.
Source: FXPro