| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - M/M | 0.0% | -0.2% to 0.3% | -0.1% | 0.1% |
| CPI - Y/Y | 6.6% | 6.3% to 6.8% | 6.5% | 7.1% |
| Ex-Food & Energy- M/M | 0.3% | 0.2% to 0.4% | 0.3% | 0.2% |
| Ex-Food & Energy- Y/Y | 5.7% | 5.6% to 5.8% | 5.7% | 6.0% |
Highlights
December CPI was lower than expected, as the headline index unexpectedly contracted 0.1 percent on the month, after edging up 0.1 percent in November, for a 12-month gain of 6.5 percent, compared to consensus expectations of flat and 6.6 percent, respectively. At 6.5 percent, the 12-month inflation rate is the smallest since October 2021.
Core inflation was in line with expectations, with a monthly rate of 0.3 percent and a 12-month rate of 5.7 percent.
The monthly CPI decrease was led by gasoline prices, with the overall energy index down 4.5 percent on the month, while food prices rose 0.3 percent.
Within the core index, shelter was up 0.8 percent after 0.6 percent in November. Household furnishings and operations, motor vehicle insurance, recreation, and apparel indexes also increased on the month, while airline fares and used cars decreased.
The results brought down Econoday's Consensus Divergence Index to 13, indicative of a slight outperformance of the economy.
Today's data confirm that inflation is cooling, a good reason for the Federal Reserve to contemplate slowing its tightening.
Core inflation was in line with expectations, with a monthly rate of 0.3 percent and a 12-month rate of 5.7 percent.
The monthly CPI decrease was led by gasoline prices, with the overall energy index down 4.5 percent on the month, while food prices rose 0.3 percent.
Within the core index, shelter was up 0.8 percent after 0.6 percent in November. Household furnishings and operations, motor vehicle insurance, recreation, and apparel indexes also increased on the month, while airline fares and used cars decreased.
The results brought down Econoday's Consensus Divergence Index to 13, indicative of a slight outperformance of the economy.
Today's data confirm that inflation is cooling, a good reason for the Federal Reserve to contemplate slowing its tightening.
Market Consensus Before Announcement
Core prices, up 0.2 percent and 0.3 percent the last two reports, have been coming in much lower than expected. December's consensus is up 0.3 percent. Overall prices are expected to come in unchanged after December's 0.1 percent increase, which was also much lower than expected. Annual rates are expected to continue to ease, to 5.7 percent for the core and 6.6 percent overall.
Definition
The CPI is a measure of the change in the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation for the consumer. Annual inflation is also closely watched.
The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.
The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.
The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.
The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.
The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.
The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.
Description
The consumer price index is the most widely followed monthly indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.
If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.
If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
