Synopsis:
CIBC views December’s CPI data as a positive development for the Fed, with softer core inflation offering some relief while headline inflation remained steady. The report supports the Fed's patient approach to rate cuts, focusing on labor market conditions and fiscal policy developments.

Key Points:

1. Core Inflation Eases:

   • Core CPI rose 0.23% m/m, slightly below the 0.3% consensus.
   • Three-month annualized core CPI dropped to 3.3% (from 3.7%).
   • Year-over-year core inflation edged down to 3.2%.

2. Headline Inflation Holds:

   • Headline CPI increased by 0.4% m/m, in line with expectations.
   • Year-over-year headline inflation ticked up to 2.9%.

3. Drivers of Improvement:

   • Softer core goods prices, particularly in used cars, drove the improvement.
   • Service inflation, including shelter costs, remained steady.

4. Fed’s Outlook:

   • The report aligns with the Fed’s cautious stance, as the labor market and growth remain robust.
   • No immediate changes in the Fed's approach are expected. Powell is likely to emphasize patience and data dependence in upcoming communications.

Conclusion:

CIBC sees the December CPI as a positive step in the Fed’s inflation fight, giving Chair Powell confidence to maintain a steady course while awaiting more progress on inflation and clarity on fiscal and trade policies.