Inflation Eases for the First Time Since July, Boosting Market Confidence
A key inflation metric has finally shown signs of easing, according to the latest data from the Bureau of Labor Statistics. The December Consumer Price Index (CPI) climbed 0.2% over the prior month, a deceleration from November’s 0.3% monthly gain. This marks the first time since July that year-over-year core CPI has seen a deceleration in price growth.
Core Inflation Remains Elevated, But Shows Progress
On an annual basis, prices rose 3.2%, a slight decrease from the previous four months’ 3.3% annual gain. While core inflation remains above the Federal Reserve’s 2% target, the latest data suggests progress in the right direction. According to Claudia Sahm, chief economist at New Century Advisors, “It’s good to see some progress in the right direction… We’ve been in a very ‘wait and see’ on the inflation front.”
Market Reaction: Stocks Rally, Treasury Yields Fall
The news was met with optimism in the markets, with stocks rallying and the 10-year treasury yield falling 12 basis points to trade below 4.7%. The Federal Reserve will consider this data before its next interest rate decision later this month.
Headline Consumer Prices Rise, But Core Inflation Remains Key
Headline consumer prices rose 2.9% over the prior year in December, an uptick from November’s 2.7% annual gain. However, core inflation has remained stubbornly elevated due to higher costs for shelter and services like insurance and medical care.
Used Car Prices Continue to Rise, Food Inflation Remains Sticky
Used car prices saw another strong uptick, rising 1.2% in December after a 2% monthly gain in November. Food inflation also remained elevated, with prices rising 0.3% month over month. Egg prices continued to surge, increasing another 3.2% month over month.
Shelter Index Sees Smallest Annual Increase Since January 2022
The shelter index rose 4.6% on an unadjusted, annual basis, slightly lower than November’s 4.7% uptick. This marks the smallest 12-month increase since January 2022. The index for rent and owners’ equivalent rent each rose 0.3% from November to December.
Uncertainty Ahead: Trump’s Policies Could Impact Inflation
The election of Donald Trump as the nation’s next president has further complicated the outlook, with some economists arguing the US could face another inflation resurgence if Trump follows through with his key campaign promises. His proposed policies, such as high tariffs on imported goods, tax cuts for corporations, and curbs on immigration, are seen as inflationary.
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