New data from the Bureau of Labor Statistics on Wednesday showed that the core inflation measure fell for the first time since July.
On a “core” basis, which strips out the more volatile costs of food and gas, the December Consumer Price Index (CPI) rose 0.2% from the previous month, slowing from November’s 0.3% monthly gain. On an annual basis, prices increased by 3.2%.
Prior to December’s print, core CPI had been stuck at a 3.3% annual gain over the past four months. It was the first time since July that the annual core CPI saw a slowdown in price growth.
The print is the latest economic data the Federal Reserve will consider ahead of its next interest rate decision later this month. Stocks rose after the report, with the 10-year Treasury yield (^TNX) falling 12 basis points to trade below 4.7%.
More details: What the Fed’s rate cut means for bank accounts, CDs, loans and credit cards
“Markets reacted positively this morning for a good reason: The Federal Reserve is willing to watch headline CPI rise temporarily unless that increase spills over into core CPI, and that’s what happened in December,” said Eugenio, chief economist at Raymond James. Aleman wrote in a Wednesday note.
Headline consumer prices rose last month as predicted. CPI rose 2.9% in December from a year earlier, higher than November’s 2.7% year-on-year increase. Annual growth is in line with economists’ expectations.
The index rose 0.4% from the previous month, ahead of the 0.3% increase seen in November and also in line with economists’ estimates.
Seasonal factors such as higher fuel costs and persistent stickiness in food inflation kept the headline numbers high.
U.S. Federal Reserve Chairman Jerome Powell gestures as he speaks at a press conference after the Monetary Policy Committee meeting on December 18, 2024 in Washington. (ANDREW CABALLERO-REYNOLDS/AFP via Getty Images) ·ANDREW CABALLERO-REYNOLDS via Getty Images
Core inflation has risen stubbornly due to rising costs for services such as shelter and insurance and health care. Used car prices also posted another strong rise for the third month in a row, rising 1.2% in December after a 2% month-on-month increase in November.
Although inflation has slowed, it remains above the Federal Reserve’s annual target of 2%.
“Inflation has not been steady,” Claudia Sahm, chief economist at New Century Advisors and a former Federal Reserve economist, told Yahoo Finance’s Morning Brief. “It’s been pretty uneven, but it’s good to see some progress in the right direction. I think that’s the biggest part of it. We’ve been very wait-and-see on the inflation front. That’s huge. Where the Fed is lined up.”
“It’s a bit of a breather to get the bad news this morning,” he said. “But it’s not really a game-changer. It’s more than what we’ve seen with month-to-month variability mixed in.”
The election of Donald Trump as the country’s next president has further complicated the outlook, with some economists arguing that the US could face another inflationary revival if Trump follows through on key campaign promises. The president-elect will be sworn in next week.
Trump’s proposed policies, such as high tariffs on imported goods, tax cuts for corporations and restrictions on immigration, are viewed as inflationary. And these policies could make it more difficult for the central bank to move forward on interest rates.
Highlights from the inflation print included the shelter index, which rose 4.6% on an unadjusted annual basis, slightly below November’s 4.7% increase and the smallest 12-month increase since January 2022. The index increased by 0.3% compared to the previous month. november
Economists say shelter inflation has been largely blamed for higher headline inflation in the past few months.
The rent index and owners’ equivalent rent (OER) rose 0.3% in November-December for both categories, a slight acceleration from a 0.2% increase from the previous month. Owners’ equivalent rent is the hypothetical rent a landlord would pay for the same property.
The index of being away from home fell 1% in December after increasing 3.2% in November.
Meanwhile, the energy index rose 2.6% on the month after rising just 0.2% in November. On an annual basis, the energy index fell 0.5% after falling 3.2% in the previous month.
In the energy sector, gas prices rose 4.4% in December after a modest 0.6% increase compared to the previous month.
Gas prices rose 4.4% in December after a modest 0.6% increase in the previous month (Courtesy: REUTERS/Kevin Lamarque) ·REUTERS / Reuters
The food index rose 2.5% in December last year, with food prices up 0.3% month-on-month – proving a sticky category for inflation. The indexes for eating at home and eating out each rose 0.3% in December.
More details: Even with stable headline inflation, daily prices continue to rise
It should be noted that on an annual basis, food products have become more expensive since October 2023. Egg prices continued to stand out, rising 3.2% on the month after rising 8.2% in November. The price of eggs has increased by 37% in the last year.
Other indices that have shown notable growth over the past year include auto insurance (+11.3%), healthcare (+2.8%), education (+4%) and leisure (+1.1%).
Alexandra Canal He is a keynote speaker at Yahoo Finance. Watch it on X @allie_canal, LinkedIn, and email her at [email protected].
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