December CPI report is out. Overall CPI is -0.1% in December vs. 0.1% in November while the core CPI rose 0.3% in December vs. 0.2% in November. Overall CPI YoY rose 6.5% in December vs. 7.1% in November and 7.7% in October. Core CPI YoY rose 5.7% in December vs. 6.0% in November and 6.3% in October. We are seeing a nice downward trend here so this is good news. According to the CPI news release, the index for gasoline was by far the largest contributor to the monthly all items decrease, more than offsetting increases in shelter indexes.
It’s interesting that the service portion of the core CPI stays elevated and the MoM increases have been above 0.4% since June with the YoY increase of 7%. According to the press release, the shelter index was again the dominant factor in the monthly core CPI increase, going up 0.8% MoM and 7.5% YoY. On the other hand, the goods portion of the Core CPI is going down nicely and only increased 2.1% YoY and used cars prices are finally down 8.8% YoY. The US dollar index did also go down 9% in the past 3 months, which will make imports more expensive and we will see what kind of impact it will have on inflation in the coming months.
Overall, it appears that inflation is decelerating but we are still quite far away from the 2% target. If the energy prices go up, food prices go up or the US dollar goes down for whatever reasons, it may take us a little while to reach that 2% and I can understand why the Fed has to keep the interest rates high. As Jamie Dimon said: “Inflation will come down but won’t quite go down the way people expected“.