Consumer price inflation was nonexistent in December at the headline and core levels. The consumer price index in December was unchanged for the second month in a row with lower energy costs playing a key role. The December figure was lower than market expectations for a 0.1 percent rise. Excluding food and energy, the CPI decelerated to a modest 0.1 percent increase after gaining 0.2 percent in November. Market expectations were for a 0.1 percent rise.
By major components, energy dipped 1.3 percent after declining 1.6 percent in November. Gasoline fell 2.0 percent, following a 2.4 percent decline in November. Food price inflation firmed to 0.2 percent after rising 0.1 percent the prior month.
Within the core, upward pressure was seen in medical care, recreation, and rent. Declines were seen in used cars & trucks, new vehicles, and apparel.
Year-on-year, overall CPI inflation posted at 3.0 percent, compared to 3.4 percent in November (seasonally adjusted). The core rate edged held steady at 2.2 percent on a year-ago basis. On an unadjusted year-ago basis, the headline number was up 3.0 percent in December versus 3.4 percent in November. The core was up 2.2 percent, matching November's rate.
The latest CPI report continues to give the Fed leeway for continued loose monetary policy. Year-ago rates are above the implicit Fed target range for inflation but on the margin, they are coming down as some Fed officials have predicted. Between favorable jobless claims, housing starts & permits, and low inflation, equity futures are moderately positive.
Market Consensus before announcement
The consumer price index in November was unchanged after declining 0.1 percent in October. Excluding food and energy, the CPI increased 0.2 percent after a 0.1 percent advance in October. By major components, energy fell 1.6 percent after declining 2.0 percent in October. Food price inflation increased 0.1 percent after rising 0.1 percent the prior month. Within the core, the indexes for shelter, medical care, apparel, and personal care all rose. On the down side for November, indexes for new vehicles and for used cars and trucks declined.