- Core inflation was marginally below consensus…
- ...as warm core services inflation was offset by flat core goods inflation
- The breadth of inflationary pressures picked up
- Outlier moves across so many components raise doubts after distorted November
- Markets continue to price the FOMC on hold this month
- US CPI / core CPI, m/m %, SA, December:
- Actual: 0.31 / 0.24
- Scotia: 0.3 / 0.3
- Consensus: 0.3 / 0.3
- Prior: NA due to shutdown
Questionable US inflation data came in very slightly beneath consensus at 0.24% m/m SA, or 2.9% m/m at a seasonally adjusted and annualized rate (chart 1 with cautions about absent prior data). The year-over-year rates were reasonably stable (chart 2).
That six-one-hundredths of a percentage point undershoot relative to consensus expectations for core inflation prompted a knee-jerk initial rally in US 2s that then faded toward only a minor move lower once details were digested.
Core goods inflation collapsed to 0% m/m SAAR (chart 3). Categories like used vehicles (-1.1% m/m SA, or -12.6% m/m SAAR) contributed to this (new vehicle prices were flat at 0.2% m/m SAAR). So did multiple other goods categories that were soft, but with important offsets like apparel (+7.3% m/m SAAR).
Core services inflation remained robust. Services CPI ex-housing services and ex-energy services was up by 0.29% m/m SA, or 3.5% m/m SAAR (chart 4).
Within services, hot areas were OER and primary rent, both up 0.3% m/m SA, or 3.8% m/m SAAR for OER and 3.2% m/m SAAR for primary rent. Fed Governor Miran’s housing disinflation narrative suffered a strong setback this time.
As for headline CPI, a contributing factor was that food prices were up 8.9% m/m SAAR with energy up 3.6% but not because of gasoline (-5.3%).
The breadth of inflationary pressures increased (charts 5, 6). The very large underlying movements—up and down—across many components support a case for treating the data with high suspicion. There is nothing in here that leads me to believe the FOMC would pivot more dovishly in favour of a January cut.
Some examples of outlier component moves include shelter components up between 4–5% m/m SAAR, apparel up 7.3%, used vehicles –12.6%, education and communications –11.2%, public transport up 70.2% (!), hospital and medical care categories up 4–5% and so on. I think there’s a wonky hand-off effect from November’s weakened data collection that is distorting components and driving weak trust in the data.
The pandemic era’s pattern of relatively high seasonal adjustment factors persisted (chart 7) which may have overstated the effects of little change in seasonally unadjusted core (chart 8).
The share of the basket estimated by alternative proxy methods will be released after 11amET. Recall that it has been running around record highs (see chart in my morning note).
See charts 9–17 for more components.
Charts 18–19 break down the basket in terms of y/y changes and weighted contributions to the overall y/y change in CPI.
Charts 20–21 do likewise for the m/m changes.
Also please see the accompanying table with more details.
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