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Inflation in the back seat

US CPI for the month of December was published yesterday and it accelerated a little bit since November, breaking the almaighty downtrend since June 2022. Prices increased by 3.4%, with two important notes: Energy was a detractor compared to Dec 2022, and shelter, measured by #oer is in a very soft downtrend, where in reality, rents have come down substantially. As a result, rate cuts exptactions haven’t moved that much, and are still discounting no cuts in January 31st and 70% chance of a 25 bps cut in March. At this point, inflation, unless there is a big surprise one way or another, has taken the back seat, and unemployment is now the most relevant indicator capable of moving the market and adjust rate cuts expectations.


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