According to a report released by the US Bureau of Labor Statistics on Wednesday, January 15, the Consumer Price Index (CPI) for December rose by 0.4% compared to the previous month and 2.9% year-on-year. This exceeded the Dow Jones’ predictions of 0.3% and 2.9%. The inflation trend aligns with the Federal Reserve’s view of slowing down the pace of interest rate cuts this year.
The data from the Bureau of Labor Statistics also showed that excluding the volatile categories of food and energy, the core CPI for December increased by 0.2% month-on-month and 3.2% year-on-year, slightly lower than the expected 0.3% and 3.3%, respectively.
Breaking down the specific categories, food prices in December rose by 0.3% month-on-month and 2.5% year-on-year; energy prices increased by 2.6% month-on-month but decreased by 0.5% year-on-year; new car prices rose by 0.5% month-on-month but fell by 0.4% year-on-year; prices for used cars and trucks rose by 1.2% month-on-month but decreased by 3.3% year-on-year; and transportation services saw a 0.5% increase month-on-month and a 7.3% increase year-on-year.
Housing-related costs have long been identified as one of the most stubborn factors driving inflation. Housing costs carry significant weight in the CPI (about one-third). Data from the Department of Labor indicated that housing costs in December rose by 0.3% month-on-month and 4.6% year-on-year.
While the overall inflation data released on Wednesday appears better than expected, it still highlights the significant work the Federal Reserve needs to do to achieve its 2% target.
According to data from the Chicago Mercantile Exchange, futures pricing continues to suggest that the Federal Reserve will keep rates unchanged at the meeting on January 28-29. The Fed is more likely to cut rates twice this year, with each cut expected to be 25 basis points.
Brian Jacobsen, Chief Economist at Annex Wealth Management, stated that while it’s a relief to see core inflation slightly lower than the previous month, consumers are not experiencing any relief in fuel costs. Jacobsen noted that high inflation in recent years has caused psychological distress among consumers, which may lead the Fed to approach the report cautiously without being overly optimistic.
Peter Cardillo, Chief Market Economist at Spartan Capital Securities, shared the opinion that this report did not fundamentally change much, indicating that inflation remains sticky.
Ellen Zentner, Chief Economist and Strategist at Morgan Stanley Wealth Management, mentioned that the CPI data today may make the Fed more dovish. While it may not alter expectations of a pause in rate cuts later this month, it should temper discussions about the Fed potentially raising rates.
Zentner added, “From the initial market response, investors seem to find some relief after months of stubborn inflation data.”