U.S. Inflation Report: Prices Slightly Increase in December

January 11, 2024

The bottom line is that the most likely path for inflation from here is not upwards or sideways but rather down.

Chief global strategist at J.P. Morgan Asset Management David Kelly on the Consumer Price Index (CPI) report for December; the CPI report provides an important read on inflation. While prices in December rose slightly more than expected, Kelly noted the significant decrease in inflation since its peak during the summer of 2022.

Why It Matters: The Consumer Price Index (CPI) measures a mixed basket of costs of goods and services in the United States, and is used as an important gauge of inflation (high inflation = your dollar buys you less). Prices in December increased 3.4% from the previous year, and rose 0.3% from November – both figures slightly higher than economists expected and above the government’s goal targeting “an annual inflation rate of 2% …” (Investopedia). Core inflation (“core CPI”) – seen as a better gauge of inflation because the measure strips out food and energy prices, which can be volatile – showed prices increasing 3.9% over the past year (the lowest reading since May 2021) with increases in shelter costs, medical care and motor vehicle insurance contributing to the rise.

Chief global strategist at Principal Asset Management Seema Shah said of the report, “These are not bad numbers, but they do show that disinflation progress is still slow and unlikely to be a straight line down to 2%. Certainly, as long as shelter inflation remains stubbornly elevated, the Fed will keep pushing back at the idea of imminent rate cuts.”

Something to Consider: The CPI influences the Federal Reserve’s decision regarding the future of interest rates. Context: The federal funds rate (which helps to set other borrowing rates) has been held at its highest level in 20+ years as the Fed attempts to combat elevated inflation by decreasing demand. CNBC explains, “despite the higher-than-expected inflation readings, futures traders continued to assign a strong possibility that the Fed would start cutting interest rates in March. The CME Group’s FedWatch gauge of futures pricing indicated about a 63% probability of a March reduction, slightly lower than where it stood” prior to the most recent inflation data.

Read More:

Inflation Edged Up in December After Rapid Cooling Most of 2023 (The Wall Street Journal)

Consumer prices rose 0.3% in December, higher than expected, pushing the annual rate to 3.4% (CNBC)

by Emily Hooker, based in Texas