The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent on a seasonally adjusted basis in December, after rising 0.3 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the past twelve months, the All Items Index has risen 2.9 percent ahead of the seasonal adjustment.
The index of all items except food and energy rose 0.2 percent in December, after rising 0.3 percent in each of the previous four months. Indices that rose in December include shelter, airline ticket prices, used cars and trucks, new vehicles, motor vehicle insurance, and medical care. Personal care, telecoms and alcoholic beverages were among the few major indicators that fell during the month.
The out-of-home food index rose 0.3 percent in December, as it did in November. The limited service meals index rose 0.4 percent over the month and the full-service meals index rose 0.2 percent.
The home food index has increased by 1.8 percent over the past twelve months. The meat, poultry, fish and eggs index rose by 4.2 percent over the past twelve months and the non-alcoholic beverages index increased by 2.3 percent. Over the same period, the index of other foods at home rose by 0.8 percent, and the index of fruits and vegetables increased by 1.0 percent. The index of dairy and related products increased by 1.3 percent over the year, and the index of cereals and bakery products increased by 0.8 percent during the same period.
The outdoor dining index rose 3.6 percent over the past year. The limited service meals index increased by 3.7 percent over the past twelve months, and the full-service meals index increased by 3.6 percent over the same period.
Market Reactions to the US Monthly Consumer Price Index
Markets responded positively to December CPI data, as US equities showed modest gains and bond yields remained relatively stable. Investors welcomed the news that inflation is stable, as this suggests that the economy is not overheating and that aggressive tightening by the Fed may not be necessary in the short term. With inflation now below previous years’ peaks, financial markets are starting to look to a more stable economic environment.
For equities, stable inflation tends to favor growth stocks, especially in sectors such as technology, discretionary consumer goods, and telecom services, which benefit from lower borrowing costs and a more predictable economic environment. The absence of dramatic inflation spikes means that companies can plan for the future with greater certainty, and consumers are unlikely to cut spending. As a result, the S&P 500 and other major stock indices saw moderate increases following the release of a report. Consumer Price Index, reflecting generally positive sentiment towards continued growth in the economy.
On the other hand, the bond market reacted more moderately. The yield on 10-year US Treasury bonds remained relatively unchanged after the release of the consumer price index, suggesting that investors do not expect significant shifts in interest rates in the near future. Despite the positive inflation report, investors in the fixed income market are cautious. While the data suggests that inflation is stable, it also suggests that inflation is not yet fully controlled, especially in certain sectors such as housing and healthcare, where price pressures remain high.
This means that the Fed may need to maintain its cautious stance on interest rates to ensure inflation continues to trend downward. The mixed reaction of the bond market reflects a balance of optimism on stable inflation and ongoing uncertainty about future inflationary risks.
Monthly US CPI forecast for the current month
The outlook for the core CPI report is closely related to broader economic trends. Analysts expect the core CPI for January to remain in the same 0.3% range, with many expecting a slight slowdown due to seasonal factors and ongoing economic adjustments. However, the consensus is that inflation will not return to pre-pandemic levels of stability, and instead, the current “moderate inflation” environment will continue. While the trajectory of the economy is expected to remain stable, several variables may affect the final CPI figure for the current month.
The main factor to watch in January will be any impact from seasonal changes in prices, especially in areas such as clothing, healthcare and transportation. Historically, January can see volatility due to post-holiday sales, adjustments in energy costs, and seasonal differences in commodity prices. In addition, labor market data will be important in shaping the expectations of the core consumer price index. If the labor market continues to show signs of strength, with low unemployment and rising wages, there may be upward pressure on wages, which could then lead to price growth. If wage inflation continues to accelerate, it could provide more fuel for the Fed’s inflation concerns and push it to act more aggressively in future monetary policy adjustments.
Another crucial aspect will be how energy prices behave in the first months of 2025. While energy is excluded from the core CPI, fluctuations in the energy market often have indirect effects on broader price trends. If energy prices rise due to geopolitical tensions, weather-related disruptions, or supply constraints, there could be a cascading effect on the broader economy that raises costs in other sectors, increasing pressures on the core CPI.
