«Inflation Retreats Yet Again»
The Consumer Price Index for December arrived this morning with good news. Inflation continues to ease. For the month, the price gauge fell 0.1%, which was in line with estimates. It was the largest month-over-month decline since April 2020 and translated into a 6.5% annual inflation rate.
Core CPI was up 5.7%.
Risk assets, which have been rallying in anticipation of today’s release, are rising once more premarket. Stocks, bonds, and commodities are up. Interest rates and the U.S. dollar are down. Time will tell if the strength sticks. We’ve rallied quite a bit already this week.
The year-over-year CPI number of 6.5% still seems high, but we’re anchored on levels from last December. If you look at a more responsive 3-month reading, CPI is already well below the Fed Funds rate.
This cements the Fed will only lift rates 25 basis points at next month’s meeting. Following the report, the CME Fedwatch Tool now shows a 93% chance of a quarter-point hike. One week ago, the odds stood at 62%.
Consumer Price Index (CPI)
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