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Jan 11 - 09:55 AM

CIBC: Analysis of December's US CPI and Federal Reserve Implications

By eFXdata  —  Jan 11 - 09:05 AM

Synopsis:

CIBC provides insights on the US CPI data for December 2023 and its potential impact on the Federal Reserve's policy decisions.

Key Points:

  1. December CPI Overview:

    • Core CPI rose by 0.3% month-over-month, aligning with expectations and maintaining the November rate. Headline inflation also increased to 0.3%, surpassing the anticipated 0.2% gain.
    • Year-over-year, core inflation decreased slightly to 3.9%, while headline inflation climbed to 3.4% from November's 3.1%.
  2. Core Services and Shelter Inflation:

    • Core services prices continued their 0.5% rise for the second month, with shelter inflation also persisting at this rate, marking a three-month acceleration.
  3. Core Goods Prices Stability:

    • Despite these increases, core goods prices remained stable, reflecting the ongoing impacts of supply chain normalization and tight monetary policy.
  4. FOMC's Reaction to Shelter Inflation:

    • The consistent rise in shelter inflation will likely draw attention from the Federal Open Market Committee (FOMC), although it's less significant in the Fed's preferred core PCE inflation measure.
  5. Shifting Focus of the Fed:

    • The considerable progress in core inflation momentum, though not fully realized in year-over-year terms, may prompt the Fed to shift its focus from strictly price stability to broader dual mandate objectives.

Conclusion:

The recent CPI data indicates a mild increase in price pressures and a continuation of core inflation's approach towards the Fed's target. The stickiness in shelter inflation, coupled with the progress in core inflation, suggests that the Fed may soon adjust its focus, potentially easing policy in the latter half of 2024. This analysis underscores the evolving economic landscape and its implications for future Federal Reserve policies.

Source:
CIBC Research/Market Commentary

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