economy Markets

Inflation Comes In Cool, Underscoring Fed Patience

The narrative persists.

Consumer prices in the US rose less than expected last month, underscoring the case for Fed patience and ensuring that the bar for rate hikes remains impossibly high, at least in the near-term.

The headline CPI print for December is 2.3% YoY. That’s the biggest increase since October of 2018, but still cooler than the expected 2.4% gain. MoM, the rise was 0.2%. That too is less than expected.

This snaps a two-month streak of hotter-than-anticipated headline numbers, and comes on the heels of the very subdued average hourly earnings figures that accompanied the December jobs report last week. Average hourly earnings rose just 2.9% YoY in December, less than the 3.1% consensus anticipated and the first sub-3% print since July of 2018.

The indexes for gasoline, shelter, and medical care all rose in December, accounting for most of the increase in the seasonally adjusted all items index, the BLS said.

The core CPI print for December came in at 2.259%. That’s a shade shy of estimates, but basically in line and unchanged for the third straight month. MoM, core prices rose 0.113%, less than the expected 0.2% rise.

“US inflation was a touch softer than expected in December, but with headline and core CPI still running at 2.3% year-on-year, and wage growth having moderated to 2.9%, there is a squeeze on household spending power”, ING said Tuesday. “This will likely limit the upside in consumer spending and GDP growth this year”.

As noted here over the weekend, even if inflation comes in some semblance of hot going forward, Jerome Powell has essentially said it would take a series of unthinkably high prints to change the Fed’s decision calculus.

Fed speakers will underscore that message this week. Indeed, Bostic made it explicit on Monday. “We’re going to want to let the economy run and run hot enough to where inflation starts to move and get us to a place where we’re comfortable that the level where we’re at is not a threat to expectations”, he remarked, in Atlanta.

The Fed’s preferred gauge has been notoriously stubborn.

At the end of the day, it’s hard to imagine how the price data could evolve in a way that would move the needle back in favor of rate hikes – in the US and especially abroad.


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