The consumer price index (CPI) edged higher in December after the month's surprisingly strong jobs report, potentially pushing back the Federal Reserve's expected rate cut in March. be.
The Labor Department announced Thursday that the CPI rose 0.3% for the month, up from 0.1% in November and no increase in October. On an annualized basis, the index rose 3.4% from 3.1% in November, but remains below its recent high of about 3.7% hit in September and October.
“This rise in the CPI is a significant reminder of the unpredictability of economic recovery and the uncertainty of macroeconomic data,” John Meyer, an asset manager at Global X, said in an analysis.
“This suggests investors need to temper expectations and remain cautious.”
Thursday's CPI data also comes on the heels of a surprisingly strong December jobs report.
The Labor Department said last week that economic growth added 216,000 jobs in December, and the unemployment rate remained steady at 3.7%.
Despite earlier concerns, stronger-than-expected inflation and jobs numbers keep the U.S. on track for lower inflation without a recession (a feat known as a soft landing).
Still, the data could support the Fed's rate cut plans, dampening Wall Street's hopes for a March rate cut. According to the paper, financial markets have a 69% chance that the Fed will cut interest rates at least once in March, and it is almost certain that interest rates will remain unchanged in January. CME FedWatch Tools.
Despite accelerating each month, headline inflation has fallen sharply from the pandemic peak of June 2022, when it rose at an annual rate of 9%.
“Core” inflation (which excludes the more volatile categories of energy and food, which the Fed has given more attention to) was flat this month, with an annualized increase of 3.9%, up from 4% in November. It slowed down.
Housing costs remain almost double the overall inflation rate
Housing is a sector of the economy that is particularly sensitive to Fed rate hikes, but it still lags behind the decline in headline inflation.
Housing costs remain the main driver of inflation, with an annual increase of 6.2% in December. Car insurance prices are also well above average, rising 20.3% annually.
“Home and auto insurance remain the root of the problem, with continued strong month-over-month increases,” Bankrate analyst Greg McBride said in an analysis Thursday.
“Shelter remains the largest contributor, accounting for more than half of the headline CPI increase this month and more than two-thirds of the core CPI increase over the past year,” he said.
Despite the level of housing inflation, prices are still on the decline. In December, the annual rate of growth was 6.2%, down from 6.5% in November and down from the peak of 8.2% in March last year.
“Housing is the last mile against inflation, and the only way to combat inflation is to increase the supply of housing. Rather, the Fed's high interest rates will push potential buyers back into the rental market and discourage new home construction. It is exacerbating this crisis,” Lindsey Owens, director of the economic policy advocacy group Ground Collaborative, said in a statement.
“A prolonged high interest rate environment is exactly the wrong approach to lowering housing costs. Shelter inflation should give the Fed further incentive to cut rates,” she wrote.
Treasury yields could rise this year on expectations of fewer interest rate cuts, Austin Scholl, an analyst at investment firm Avantax, wrote. Even if the Fed eventually plans to cut rates, that could cause mortgage rates to rise.
“There are reasons to think that inflationary shelter factors should start to wane, but barring an economic downturn or significant disinflation in the coming months, Treasury yields will rise as markets temper expectations for monetary easing. “policies that may continue,'' he wrote.
Energy costs are falling across the board
Changes in energy costs, measured annually, were in negative territory in December for all categories except electricity.
Gasoline prices fell 1.9%, household gas prices fell 13.8%, and overall energy fell 2%.
The average price of a gallon of gas nationwide is $3.07, down from $3.26 a year ago, according to automaker AAA, and well below the post-pandemic high of around $5 a gallon.
Food prices have fallen but are still on the rise
Food inflation in December was below headline inflation, which rose at an annual rate of 2.7%.
Fresh fruit and vegetables fell 0.5% for the year, and fresh seafood fell 2.5%. Eggs were 23.8% cheaper compared to December 2022.
However, rising food prices remain a risk for consumers.
“The fluctuations in commodity prices over the past few years have coincided with a period of record profit growth by global energy and food traders. The food trading sector conservatively accounts for around 70% of the global food market share. 4 companies, accounting for 20% of the total, recorded dramatic profit increases from 2021 to 2022,” UN economists said in an October report.
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