A benign Core CPI report with just 2.6% increase in annual inflation Versus estimates 2.7% suggests that price increases are moderating.
The BLS reported this morning that the December Consumer Price Index (CPI) rose 0.3% MoM matching estimate of a 0.3% increase. It was slightly higher than the 0.2% increase of the previous month.
Annualized: 2.7% YoY, higher than the 2.6% consensus and matching the previous month's increase of 2.7%.
The Core CPI, which excludes food and energy rose just a tad less than expected at 0.2% MoM beating estimates of 0.3% consensus and matching the previous month's increase of 0.2%
Annualized: 2.6% YoY, a relief, vs. 2.7% consensus and matching 2.6% from the prior month.
Analysts considered the prior report a weak mash up of inaccurate data because of the government shutdown, and expected inflation to be higher, so this tame report is a welcome surprise.
Here’s more detail and comments from Bloomberg:
Food away from home (otherwise known as restaurants) also saw a 0.7% monthly increase. That’s the biggest since October 2022. For all the encouraging signs from the core CPI, the person on the street isn’t going to be wildly happy if both grocery and restaurant prices are climbing the most since the worst year of the inflation crisis. Here’s one category that is proving a real bugbear to the Trump administration: Food at home. (In other words, groceries.) The monthly price rise here is 0.7%. That’s the biggest gain since August 2022, back near the peak in inflation. Shelter prices did see some bounce back, with a 0.4% increase, double the 0.2% rise for the two months October/November. But not enough to propel a faster increase in the core CPI.
Bloomberg Intelligence chief US rates strategist Ira Jersey has a first take, and he was fairly upbeat:
Knee-jerk rally and bull steepening are justified with the relief that consumer prices didn’t really jump. The 2.7% YoY headline translates toward a sub-2.5% PCE deflator, so clears the way for the Fed to be a bit more dovish. We still don’t think a cut in January is a done deal, but this certainly puts March on the table.
