Slow
progress
continues
on
US
inflation,
even
as
overall
price
pressures
ticked
up
in
December,
the
latest
Consumer
Price
Index
report
reveals.
The
Bureau
of
Labor
Statistics
reported
that
CPI
rose
3.4%
on
an
annual
basis
and
0.3%
on
a
monthly
basis
in
December.
The
yearly
figure
was
higher
than
November’s
reading
and
economist
expectations
of
3.2%.
More
than
half
the
monthly
gains
were
driven
by
increases
in
shelter
costs.
Despite
the
reading,
the
Federal
Reserve
is
expected
to
cut
interest
rates
in
2024,
potentially
as
soon
as
its
March
policy-setting
meeting.
“Today’s
report
shows
core
inflation
essentially
holding
steady,
which
should
allow
the
Fed
to
cut
in
March,”
says
Preston
Caldwell,
chief
US
economist
at
Morningstar.
He
notes
that
on
a
three-month
annualised
basis,
the
inflation
rate
came
in
at
1.8%
in
December,
depressed
by
a
sharp
drop
in
energy
prices.
Core
CPI,
which
excludes
volatile
food
and
energy
prices,
rose
3.9%
on
an
annual
basis
and
0.3%
on
a
monthly
basis
in
December.
Both
readings
were
slightly
higher
than
economists
expected,
though
annual
core
inflation
has
now
dropped
below
4%
for
the
first
time
since
May.
Headline
inflation
fell
sharply
over
2023,
from
6.4%
on
an
annual
basis
in
January
to
a
little
more
than
half
that
rate
in
December.
Thursday’s
data
underscores
that
progress
on
the
Fed’s
inflation
fight
could
be
a
little
slower
and
choppier
during
its
so-called
“last
mile”
than
it
was
a
year
ago.
CPI
vs
Core
CPI
Data
as
of
December
31,
2023.
Source:
Bureau
of
Labor
Statistics
December
CPI
Report
Key
Stats
–
CPI
climbed
0.3%
for
the
month
after
rising
0.1%
in
November
–
Core
CPI
climbed
0.3%
after
rising
by
the
same
amount
in
November
–
CPI
increased
3.4%
year
over
year
after
rising
by
3.1%
the
prior
month
–
Core
CPI
climbed
3.9%
from
year-ago
levels
after
increasing
4.0%
in
November
Caldwell
adds
that
core
inflation,
which
has
proved
stickier
than
the
headline
figure,
has
also
remained
relatively
steady
over
the
past
three
months.
Core
prices
rose
3.3%
on
a
three-month
annualised
basis
in
December,
he
says,
compared
with
3.4%
in
November.
Consumer
Price
Index
Data
as
of
December
31,
2023.
Source:
Bureau
of
Labor
Statistics
Shelter
Inflation
Still
Sticky
Much
of
the
recent
stickiness
in
core
inflation
is
attributable
to
high
shelter
prices,
which
include
rent
prices
and
owner’s
equivalent
housing
expenses.
“Shelter
(housing)
inflation
continues
to
run
hot,”
according
to
Caldwell,
reaching
5.1%
on
a
three-month
annualised
basis
in
December.
Excluding
the
shelter
category,
core
inflation
would
have
been
just
2%
last
month.
In
general,
measures
of
housing
costs
tend
to
show
up
in
inflation
data
with
a
lag.
Economists
widely
expect
shelter
inflation
to
fall
in
the
months
ahead
as
the
data
catches
up
with
ongoing
declines
in
rent
prices.
“Core
inflation
will
return
to
normal
if
shelter
inflation
subsides,
which
should
be
around
the
corner,”
Caldwell
says,
though
he
notes
that
“the
exact
timing
is
uncertain”.
Change
in
Selected
CPI
Components
Data
as
of
December
31,
2023.
Source:
Bureau
of
Labor
Statistics
When
Will
the
Fed
Cut
Rates?
The
Fed
has
signalled
to
markets
that
it
has
reached
the
end
of
its
rate
hiking
cycle.
Now
investors
are
looking
ahead
to
rate
cuts,
trying
to
determine
when
and
how
often
they
will
come.
Forecasts
by
central
bankers
at
their
last
meeting
suggested
a
total
of
three
cuts
in
2024,
but
bond
market
investors
are
expecting
at
least
five,
according
to
the
CME
FedWatch
Tool.
The
Fed
is
widely
expected
to
leave
rates
at
the
current
target
range
of
5.25%-5.50%
at
its
meeting
later
this
month.
Some
strategists
expect
rate
cuts
as
soon
as
March,
and
the
bond
market
agrees.
Others
believe
cuts
are
more
likely
in
the
second
half
of
the
year.
Caldwell
is
in
the
March
camp,
adding
that
PCE
inflation
–
a
separate
measure
of
price
growth
that
the
Fed
prefers
–
has
dropped
to
1.9%
on
an
annualised
basis
over
the
past
six
months,
below
the
central
bank’s
2%
target.
That
healthy
PCE
reading
means
that
despite
Thursday’s
hotter-than-expected
headline
number,
Caldwell
believes
the
Fed
is
likely
to
cut
rates
in
March.
“Markets
appear
to
agree
with
our
assessment,”
he
says,
“with
about
a
two-thirds
implied
probability
of
a
March
cut”.
As
always,
those
expectations
could
shift
depending
on
economic
data
in
the
weeks
and
months
ahead.
Expectations
for
March
2024
Federal
Reserve
Meeting
Data
as
of
Jan
11,
2024
CME
FedWatch
Tool
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