January 10, 2022

Trading Guide: U.S. Inflation Report (December 2021)

 On January 12 at 1:30 pm GMT we’ll know how much U.S. consumer prices have increased for the month of December.


Planning on trading the event?


Here are points you’ll need to consider:


What happened last time?

Headline CPI (m/m): 0.8% vs. 0.7% expected, 0.9% in October

Core CPI (m/m): 0.5% as expected vs. 0.6% in October

Headline CPI (y/y): 6.8% as expected vs. 6.2% in October

Core CPI (y/y): 4.9% as expected vs. 4.6% in October


Headline consumer price index (CPI) registered a 6.8% increase from a year earlier in November, the fastest rate since 1982.

The core figure – which excludes volatile items like food and energy – came in at 4.9%. That’s faster than October’s 4.6% and marks the highest rate since 1991!


A closer look revealed that the drivers of price increases were broad-based. That is, prices increased in ALL categories rather than a few select groups.


Fast price increases initially translated to risk-taking that took the safe-haven dollar lower across the board.


The tides turned, however, when traders realized that high inflation would also motivate the Fed to take back its easy monetary policies at a faster pace. Not good when many are still worried about the stability of global economic recovery.


What are traders expecting this time?

Headline CPI (m/m): 0.5% vs. 0.8% previous

Core CPI (m/m): steady at 0.5%

Headline CPI (y/y): 7.1% vs. 6.8% previous

Core CPI (y/y): 5.4% vs. 4.9% previous

The closely-watched annual CPI is expected to accelerate from 6.8% to a decades-high rate of 7.1% in December.


Annual core inflation rate, which already rose from 4.6% to 4.9% in November, is expected to print at 5.4% for the month.



Higher prices in December would hint that U.S. consumers are still spending and there’s still enough economic activity to push prices higher.

But, like the sweets that ate had over the holidays, too much of a good thing may be a bad thing.


Remember that last Friday’s reports already reflected a tightening labor market – a lower unemployment rate and higher wages for those who are employed in December.


If this week’s numbers show that annualized price increases continue to waaay outpace the Fed’s 2.0% target, then FOMC members will be more motivated to take away their easy monetary policies.


The Fed tapering/tightening its monetary policies could disrupt the already shaky global economic recovery.


Not sure how you can trade the U.S. dollar during the event?


You can check out MarketMilk™ performance ranking of USD pairs for opportunities and take a look at the majors’ average volatility to get clues on your stop loss and profit targets.