| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - M/M | 0.2% | 0.1% to 0.3% | 0.3% | 0.1% |
| CPI - Y/Y | 3.2% | 3.0% to 3.3% | 3.4% | 3.1% |
| Ex-Food & Energy- M/M | 0.2% | 0.2% to 0.3% | 0.3% | 0.3% |
| Ex-Food & Energy- Y/Y | 3.8% | 3.8% to 3.9% | 3.9% | 4.0% |
Highlights
Prices rose 0.3 percent in December from November, slightly above Econoday's consensus of 0.2 percent, and the 12-month inflation rate picked up to 3.4 percent from 3.1 percent, also above expected. Excluding food and energy, the CPI was up 0.3 percent on the month and 3.9 percent year-over-year which also topped expectations.
Shelter rose 0.5 percent on the month and contributed over half of the total increase (rents up 0.4 percent and the equivalent for homeowners up 0.5 percent). Pressure also came once again from both vehicle insurance, up 1.5 percent on the month, and medical care, up 0.7 percent. Gains in recreation, personal care and education also contributed to higher monthly prices.
Energy, which had been in monthly contraction, rose 0.4 percent with food, where pressure has eased, up 0.2 percent for a second straight month.
There is plenty for the Federal Reserve to consider including half-year rates for 2023 which slowed to 1.5 percent overall in the second half of the year compared to 1.8 percent in the first half. In 2022, the half-year breakdown was 3.0 and 4.6 percent. But shelter costs do remain high, at 2.7 percent for the second half of 2023 yet below 4.1 percent in the first half and 3.8 percent in the second half of 2022.
Econoday's Relative Performance Index stands at 27 to confirm that recent US data are coming in stronger-than-expected, a trend that pushes back the need for a Federal Reserve rate cut. That being said, the slowdown in the core index 12-month rate to 3.9 percent from 4.0 percent, its lowest rate since May 2021, was a welcome development. The rate has been trending down since peaking at 6.6 percent in September 2022.
Shelter rose 0.5 percent on the month and contributed over half of the total increase (rents up 0.4 percent and the equivalent for homeowners up 0.5 percent). Pressure also came once again from both vehicle insurance, up 1.5 percent on the month, and medical care, up 0.7 percent. Gains in recreation, personal care and education also contributed to higher monthly prices.
Energy, which had been in monthly contraction, rose 0.4 percent with food, where pressure has eased, up 0.2 percent for a second straight month.
There is plenty for the Federal Reserve to consider including half-year rates for 2023 which slowed to 1.5 percent overall in the second half of the year compared to 1.8 percent in the first half. In 2022, the half-year breakdown was 3.0 and 4.6 percent. But shelter costs do remain high, at 2.7 percent for the second half of 2023 yet below 4.1 percent in the first half and 3.8 percent in the second half of 2022.
Econoday's Relative Performance Index stands at 27 to confirm that recent US data are coming in stronger-than-expected, a trend that pushes back the need for a Federal Reserve rate cut. That being said, the slowdown in the core index 12-month rate to 3.9 percent from 4.0 percent, its lowest rate since May 2021, was a welcome development. The rate has been trending down since peaking at 6.6 percent in September 2022.
Market Consensus Before Announcement
Core prices in December are expected to rise a monthly 0.2 percent versus 0.3 percent in November. Overall prices are expected to also rise 0.2 percent after increasing 0.1 percent in November. Annual rates, at percent 3.1 percent overall and 4.0 percent for the core in November, are expected at 3.2 percent and 3.8 percent, respectively.
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.
