Evening Brief – 12.12.23
Still “Sticky”
Headline U.S. consumer prices for November was expected to be flat month-over-month, having decline to unchanged in October. However, the Bureau of Labor Statistic reported a modestly higher-than-expected 0.1% rise, which pulled the year-over-year CPI change down to 3.1% – as expected – from 3.2% in October. That is still above June’s 3.1% year-over-year low print.
Core CPI, which excludes food and energy, accelerated modestly month-over-month, rising 0.3% from 0.2% with Core CPI flat at 4% in October from a year ago, still well above the Federal Reserve’s 2% target.
Despite meeting Wall Street’s forecasts, today’s inflation numbers highlighted ongoing stickiness in key spending categories such as rents and used vehicles.
Most problematically for the Federal Reserve, and anyone looking for an imminent interest rate cut, is that Core CPI Services Ex-Shelter, or SuperCore, rose 0.5% month-over-month and 4.08% on an annualized basis.
The shelter index contributed the most to the monthly increase in the index for all categories excluding food and energy. The index gained 0.4% in November, following a 0.3% increase the previous month. The rent index increased by 0.5%, as did the index for owners’ equivalent rent. The used car and truck index increased 1.6% in November, snapping a five-month decline.
According to the most recent CPI report, the doves will have to wait longer than they believed for an interest rate cut. Today’s data was likely not enough for the Fed to cut rates. Powell has focused monetary policy on the services side rather than the goods side. While improvement in these numbers could come, it’s not there yet.
“The November CPI data probably do not move the needle much for the FOMC this week. Falling gasoline prices and modest food inflation restrained the headline CPI to just a 0.1% increase in the month. Excluding food and energy prices, core CPI was up 0.3%, in line with consensus expectations. Doves looking for a downside surprise did not see one materialize, but a nasty upside shock was also avoided,” said Sarah House, senior economist at Wells Fargo.
According to CME Group’s FedWatch Tool, the market is currently pricing in a 42% chance of the first quarter-point rate cut in March, down from 54% a week ago. Meanwhile, the probability of the first quarter-point cut in May has increased to 50% from 41% a week ago.