Inflation Eases for the First Time Since Summer
A crucial inflation metric has finally shown signs of slowing down, according to the latest data from the Bureau of Labor Statistics. The December Consumer Price Index (CPI) revealed a 0.2% increase over the previous month, marking a deceleration from November’s 0.3% gain. On an annual basis, prices rose 3.2%, a slight drop from the previous four months’ 3.3% annual gain.
A Welcome Respite for the Federal Reserve
This news comes as a relief to the Federal Reserve, which has been closely monitoring inflation rates ahead of its next interest rate decision later this month. The stock market responded positively, with the 10-year treasury yield falling 12 basis points to trade below 4.7%. As Claudia Sahm, chief economist at New Century Advisors, noted, “Markets reacted positively this morning for a good reason: the Federal Reserve is ok with watching the headline CPI go up temporarily if that increase does not spill over into the core CPI, and this is what happened in December.”
Headline Consumer Prices Rise as Forecast
The CPI increased 2.9% over the prior year in December, matching economist expectations. Seasonal factors like higher fuel costs and continued stickiness in food inflation kept the headline figures elevated. However, core inflation remains a concern, driven by higher costs for shelter and services like insurance and medical care.
Used Car Prices Continue to Rise
Used car prices saw another strong uptick for the third consecutive month, rising 1.2% in December after a 2% monthly gain in November. This trend is likely to continue, with some economists warning that the US could face another inflation resurgence if President-elect Trump follows through with his key campaign promises.
Shelter Index Sees Slight Decrease
The shelter index, which rose 4.6% on an unadjusted, annual basis, slightly lower than November’s 4.7% uptick, has been blamed for higher core inflation readings over the past few months. The index rose 0.3% over the prior month, matching November. Meanwhile, the lodging away from home index fell 1% percent in December after rising 3.2% in November.
Energy and Food Prices See Mixed Results
The energy index rose 2.6% month over month after rising just 0.2% in November, driven by a surge in gas prices. On the other hand, the food index increased 2.5% in December over the last year, with food prices rising 0.3% month over month. Notably, egg prices continued to rise, increasing another 3.2% month over month after rising 8.2% in November.
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