US consumer prices showed no signs of cooling in December amid higher costs for energy goods, but the Federal Reserve’s preferred inflation gauge dipped — leading to a rally on Wall Street.
The Consumer Price Index rose 0.4% last month after climbing 0.3% in November, the Labor Department’s Bureau of Labor Statistics said on Wednesday. In the 12 months through December, the CPI advanced 2.9% after increasing 2.7% in November.
Economists polled by Reuters had forecast the CPI gaining 0.3% and rising 2.9% year-on-year.
However, core CPI — which excludes food and energy and is more pivotal to Fed policymakers — came in at 3.2%, a notch down from the month before and slightly better than the 3.3% forecast.
The better-than-expected data sent the blue-chip Dow Jones Industrial Average surging more than 700 points, or 1.7%, as investors felt renewed confidence that the Fed will cut rates multiple times this year.
In recent trading, fed-fund futures showed the chances of more than one cut rising to 46%, from 35% on Tuesday, according to CME Group data.
Fed officials expressed cautious optimism about the inflation outlook, citing continued signs of easing price pressures.
“The December CPI report continues the story we have been on, which is that inflation is coming down towards target,” Richmond Fed President Thomas Barkin said.
Meanwhile, New York Fed President John Williams said that “the process of disinflation remains in train.”
No rate cut is expected at the Fed’s Jan. 28-29 policy meeting.
Goldman Sachs expects two rate cuts this year, in June and December, a number revised down from three.
The central bank launched its easing cycle in September and has lowered its benchmark overnight interest rate by 100 basis points to the current 4.25%-4.50% range.
The last reduction was in December when policymakers also projected two rate cuts this year instead of the four they had forecast in September. The policy rate was hiked by 5.25 percentage points between March 2022 and July 2023.
Progress bringing inflation back to the central bank’s 2% target hit snag in the second half of last year.
According to the Bureau of Labor Statistics, prices in December increased for rent, airfares, new and used cars and trucks, medical care and motor vehicle insurance.
Energy appeared to be the primary driver of the headline increase, contributing over 40% to the monthly rise in all-items. The gasoline index surged by 4.4% for the month.
Inflation did ease in categories such as personal care, communication, and alcoholic beverages, which saw price decreases over the month.
“The ‘economy weakening’ argument seems to be decaying,” said Barkin.
A December hiring surge, with more than 250,000 new jobs and a drop in unemployment to 4.1%, further supports the Fed’s pause.
“You keep seeing good numbers on retail sales, unemployment, and the like … Demand, you are hearing, is good, solid, fine.”
With Post wires
