The consumer price index, or so-called CPI inflation, rose 0.8 percent in November, following a 0.9 percent increase in October, the U.S. Bureau of Labor Statistics reported. That's the highest U.S. inflation reading in nearly 40 years.
The November 2021 consumer inflation index rose 6.8 percent from November 2020 and was in line with market consensus. Although this is the ninth consecutive month in which inflation appears to have remained above the Fed's 2% target and reached its highest levels since June 1982, the market seems to be reacting as if it expected something very different. However, about that in a moment.
The most dramatic increases in energy and fuel prices
To summarize the inflation data from the U.S., it is important to note that global commodity price increases, rising demand, wage pressures, supply chain disruptions, and the low base effect from last year may have caused the current uptick in inflation. The upward pressure was broad-based, with the largest increase in energy costs (33.3 percent vs. 30 percent in October), specifically gasoline (58.1 percent vs. 49.6 percent). Inflation also increased for food (6.1 percent vs. 5.3 percent), new vehicles (11.1 percent vs. 9.8 percent) or used cars and trucks (31.4 percent vs. 26.4 percent), clothing (5 percent vs. 4.3 percent); and medical services (2.1 percent vs. 1.7 percent). Inflation appears to have slowed only in transportation services (3.9 percent vs. 4.5 percent).
The market feared it could be worse
Looking through the market reaction to the consensus data reading, it seems that investors could have expected a much higher publication, e.g. above 7 percent. Moments after the data, the US dollar seemed to lose value sharply, and the exchange rate of the main currency pair EUR/USD rose from 1.1270 to 1.1310. On the interest rate market, expectations of interest rate hikes in the USA may also have retreated. Gold rose from $1773 to $1783 and bitcoin rose from $48770 to $49950 shortly after the release. So in addition to the sheer weakness of the USD, some investors may have considered that it may be worthwhile to start protecting themselves against such high inflation, which may remain in the US for longer.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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