US CPI for December 'slightly hotter' than expected

The data for the US Consumer Price Index (CPI) in December showed that prices increased 3.4% y/y [link], which was higher than the November CPI result (3.1% y/y) and (more importantly) higher than the consensus expectations in the market of a 3.2% y/y increase. Core CPI was down to 3.9% y/y, which was the lowest core CPI reading since August 2021, but which was also slightly above the consensus estimate of 3.8% y/y.

MB bottom-line: I was pouring over financial news outlets to get a sense of the reaction to this result this morning, but what struck me was how this result is being used to confirm whatever preconceptions anyone had. If you thought that the US Federal Reserve’s actions were winning the war against inflation, you probably were in the news talking about how this result was pretty much within the “consensus” band of expected results and demonstrated that the Fed’s course was the correct one. If you thought that the Fed’s actions were either worsening the problem or ineffective in fighting the war against inflation, you were probably in the news talking about how this result is the type of surprise that should give us all reason to further question the wisdom of the Fed’s actions and demonstrated that the Fed is probably not in any position to change course now to cut rates any time soon. If anything, the only common ground between the two sides might be a vague sense that it might take a little bit longer than hoped (by some) for the Fed to begin cutting rates, but I think that was a realization that was filtering through the market already before this result became known. Higher for longer.

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