The U.S. Consumer Price Index came in on the downside once again. The CPI rose just 0.1% on the headline and the core rates.

“Financial markets were whipsawed this morning by a strong number for initial claims for jobless insurance and a favourable number for inflation,” says BMO Nesbitt Burns. “We believe the fresh data for CPI was the more significant economic release, but markets initially voted the other way, pushing up bond yields. Perhaps markets believe they already heard the inflation news in yesterday’s low PPI result.”

Nesbitt says that it looks like CPI inflation “is in the process of bottoming at a low level”. Its counterparts at Bank of Montreal say, “Recent sharp gains in oil prices, which are expected to hold through early 2003, are likely to put upward pressure on the overall CPI over the next few months. However, softness in the economy is expected to keep core prices rising near its current subdued rate.”

RBC Financial Group economists say, “Inflationary pressures remain benign in the U.S. and prices are likely to continue to fluctuate around their current path for the next six months, although energy prices will remain a wildcard for the headline rate given a Middle Eastern war premium and the political conflict in Venezuela.”

U.S. initial jobless claims fell sharply to 360,000, taking the four-week average to 387,500, CIBC World Markets reports. “Although the seasonal adjustment is tricky early in the year, the 4-week average suggests that December’s 100+K payrolls drop will be at least partly reversed in January, consistent with better readings from the Manpower survey and the rising use of temp workers and factory overtime in December. Still, we would have to see claims hold at these levels for several more weeks to mark a real turning point.”

RBC offers, “The U.S. labour market remains in weak condition, and will likely be one of the last sectors in the U.S. economy to indicate signs of a protracted recovery, when it in fact materializes.”

“We will stick to the view that further inflation reductions are growing less likely due to deterioration in the inflation leading indicators and reflationary economic policies,” concludes Nesbitt.