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Talking Points:

- Headline CPIrose by 2.1% YoY in January, beating the expected 1.9% estimate

- Core inflation also beat expectations at 1.8%

- Retail sales fell -0.3% compared to the expected print of +0.2%

- US Dollar rallies on accelerated rate hikes from the Federal Reserve

- See the DailyFX Economic Calendar for upcoming economic data and for a schedule of live coverage see the DailyFX Webinar Calendar.

See our longer-term forecasts for the US Dollar, Euro, British Pound and more with the DailyFX Trading Guides

The Consumer Price Index (CPI) rose 2.1% surpassing markets’ estimates at 1.9%. The core print, which excludes food and energy rose 1.8% also beating the estimates at 1.7%. The energy index increased by a staggering 5.5%while food index advanced 1.7%. Seasonally adjusted,the increase in the headline index was broad-based. All items rose including gasoline, shelter, apparel, medical care, and food. In all, the rise in CPI was largely due to a push in prices rather than a pull in demand. See the full price changes for items within the index below:

Dollar Rises as Broad-Based Inflation Offsets Falling Retail Sales

Source: Consumer Price Index – January 2018

Advance estimates of U.S. retail and food services sales for January 2018 saw a decrease of 0.3%. This comes as a surprise as markets were expecting a modest increase of 0.2%. Interestingly, it was not all bad as nonstore retailers were up 10.2% from January 2017, while gasoline stations were up 9.0% from last year.

The broad based inflation report equated to a much strong dollar.Markets interpret the uptick in inflation as a more aggressive response from the Federal Reserve with respect to monetary policy. Although, this is the first print of the year and it remains to be seen if this uptick in inflation is the formation of an uptrend in prices.

Below is a list of economic releases that has had a limited impact on the US Dollar:

- USD Consumer Price Index (YoY) (JAN): 2.1% versus 1.9%, from 2.1% previous

- USD Consumer Price Index Ex Food and Energy (YoY) (JAN): 0.3% versus 0.2% expected, from 0.2% (revised down from 0.3% previous)

- USD Retail Sales Advance (MoM) (JAN): -0.3%% versus 0.2% expected, from 0.0% (revised down from 0.4% previous)

Chart 1: DXY Index 15-minute Chart (February 12 - 14 2018)

Dollar Rises as Broad-Based Inflation Offsets Falling Retail Sales

The US Dollar Index spiked as much as 0.5% following the release of the data this morning. DXY set a new a high for the year rising to 90.12, the highest since December 23. However, at the time this was written, traders began to fade the move as DXY traded at 89.92.

--- Written by Dylan Jusino, DailyFX Research