December core inflation up a bit less than expected.
The December CPI rose by 0.3 percent, keeping the 12-month trend rate at 2.7 percent – exactly as markets expected. The core CPI (removing the volatile food and energy components) increased by 0.2 percent, a bit lighter than expected, with the trend rate at 2.6 percent. The difficulties with determining the shelter component prices with no October survey that were present in last month’s report are still present in the December report – and will be into the spring.
Moreover, the late dates of the November price survey may have run into early holiday sales, something that would not have occurred with a more normal survey period. As a result, it is possible that the reported inflation rates are a bit below what they would be if the October survey had occurred – but it’s difficult to know for sure and it is clear that the analysts at BLS have done the best they can with the more limited data that they have.
The slower pace of core inflation adds to the data that suggest the Fed could ease later this month, although we still expect no change in policy at that FOMC meeting. Inflation appears to have flattened out toward year end at rates somewhat above those seen in the spring and the economy is growing at a solid pace. These are not trends that would normally move the Fed to ease monetary policy.
David W. Berson, Ph.D., CBE
Chief Economist
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