Much of the surprise in so-called core goods, which excludes energy and food, came from pickups in prices for used cars and apparel, despite year-end promotional activity. Services prices also held firm, notably within costs for housing and car insurance, which rose the most on an annual basis since 1976.
I expect housing and energy costs to keep falling, so I am not concerned yet.
The risk is that either the easing FCI overexcites the consumer and/or energy prices spike on geopolitics. To wit:
Iran captured an oil tanker off the coast of Oman, heightening tensions in the world’s most important trade lane for global crude supply.
It seized the St Nikolas “in retaliation for the theft of oil by the US,” Iran’s semi-official Mehr reported. The ship was previously known as the Suez Rajan, which was involved in a high profile American sanctions bust-up that ultimately led to the removal of 1 million barrels of Iranian oil.
These are precisely the kinds of provocations we can expect to continue. Iran does itself a favour by lifting the oil price, so long as it does not push too hard and bring the US military to bear.
That is still a tail risk, so Iran’s hijinx should lose impact over time.
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