Slowing Savior – The December CPI Report
Many were awaiting what would be the biggest piece of economic data in 2023 so far: the December CPI report. There have been only 13 days in 2023, making the previous statement misleading, but this CPI report holds importance due to many reasons. First, it gives us an indication as to whether previous slowdowns in the past few months were a fluke or not. Second, it provides more context as to what the Federal Reserve will decide on interest rates, the monetary policy device that has essentially controlled the stock market. Lastly, and most importantly, we get a view as to what consumers across the country are experiencing, and how healthy or unhealthy the economy is becoming.
Fortunately, the market priced in the correct scenario, with inflation easing in the United States for what has been 6 consecutive months. CPI rose by 6.5 percent in December from a year earlier, a slowdown from 7.1 percent in November. When it comes to monthly increases and decreases, CPI decreased by 0.1 percent from November to December, which met economist expectations. Although food prices increased by 0.3 percent, the biggest change we saw was at the pump, where prices fell by 9.4 percent and are now down from a year ago. Excluding those two, we saw that core inflation rose by 0.3 percent, which was once again in line with expectations set by economists. The price of goods is decreasing as supply chains continue to improve not only in the US but around the world, and existing-home sales continue to fall because of the interest rate hikes the Federal Reserve has implemented. The reason inflation didn’t slow further is due to the rise in the price of services, and this is where Powell looks to loosen up the labor market. High wage growth seems to be a problem now, which leads us to the Federal Reserve. The report all but confirms a 25-basis point rate hike next week when they make their interest rate decision, and if this trend continues, we could see the Fed hold back on rate increases in the future.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
