US food prices increased at a higher rate in December, but this was balanced by lower prices for gasoline and used vehicles.
Monthly CPI, Core CPI Data Unavailable Due to Government Shutdown
On a monthly basis, CPI rose 0.3% in December, repeating the gain seen in September and matching the market estimate. The data for October and November are unavailable due to the government shutdown late last year. The gap in the monthly inflation reports has made it difficult to assess the direction of inflation over the past several months.
Core CPI, which excludes food and energy and is considered a better gauge of inflation trends, remained steady at 2.6%, just below the market estimate of 2.7%. Along with the November reading, this marks the lowest level since March 2021. Monthly, core CPI rose 0.2%, unchanged from September, which is the last available data due to the government shutdown.
Inflation Drifting but Stubbornly High
Today’s inflation reports indicate that inflation remains stubbornly above the Federal Reserve’s 2% target, but it has been drifting. With inflation not worsening, many Fed members have pointed to the deterioration in the labor market as a greater risk to the economy than inflation.
The Federal Reserve remains cautious and is virtually certain to maintain rates at the Jan. 27-28 meeting. The Fed trimmed rates at this month’s meeting but the vote was split, as two of the nine members argued that inflation is too high and more evidence was needed that inflation is easing. The split vote demonstrates that there is dissension within the Fed as to whether inflation is contained.
US Dollar Steady, Stock Markets Slightly Lower After Inflation Report
Inflation didn’t move much in December and was close to the market estimate. This resulted in limited movement from the US Dollar on Tuesday. The Dollar is almost unchanged against the major currencies, with the exception of the USD/JPY currency pair, with the Dollar sharply higher. USD/JPY climbed by 0.58% today, trading as high as 158.83. Earlier, USD/JPY hit a daily high of 159.04, its highest level since July 2024, as the yen continues to struggle.
The US stock markets are slightly lower in early trading Tuesday in reaction to the inflation report. The Nasdaq 100 Index is down 39.18 points (0.15%) at 25,748.049. The S&P 500 Index is down 13.49 points (0.19%) at 6963.78.
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