US Core inflation undershot expectations in December, rising 20 basis points to 3.2% in a move likely to please policymakers.
Consensus expectations for core inflation had been a 30 point increase. Headline CPI rose two percentage points to 2.9% in December, in line with expectations.
The increase was fuelled by energy prices, which accounted for over 40% of the monthly rise, while food prices also contributed.
The data release follows on from UK inflation figures for December, revealed earlier today, which revealed an unexpected drop in headline inflation to 2.5%.
See also: ‘Not out of the woods yet’: UK inflation falls by 10 basis points in December
Hetal Mehta, head of economic research at St. James’s Place, said the US inflation data would come as a relief to a wide variety of policymakers as global yields move lower.
“Core inflation surprised on the downside and there are tentative signs that inflation pressures may have stopped building after months of acceleration. But headline inflation did tick up and more evidence of inflation moderation will be necessary to get the Fed comfortable with multiple rate cuts this year.
“We don’t think these data change our view of a soft landing, with growth moderating to a trend-like pace. The Fed has the firepower to cut rates if things do start to deteriorate materially.
“Overall, the outlook is still quite muddy as so much will depend on what the Trump administration comes up with policy wise (especially tariffs and immigration).”
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With all eyes on the bond market in recent weeks, treasury yields have ticked lower in early trading following the release of the inflation print.
“The US Treasury market, and global rates markets, breathed a sigh of relief as the US CPI contained few surprise. In fact, the small miss on core CPI was cheered on by the market, pushing bond yields sharply lower. Headline CPI was 2.9% year-on year, bang in line with consensus but higher than the 2.7% reading in November,” said Aegon Asset Management investment manager Colin Finlayson.
“The small miss on Core CPI at 3.2% vs 3.3% – led by an easing back in core services prices – was welcome relief to investors after a relentless sell off over the last month. For a market living on its nerves, anything other than an upside surprise was a ‘win’.
“After the softer inflation data in the UK this morning, this has offered a crumb of support to bond market ‘bulls’ and was a reminder that things other than fears over fiscal spending and term premia can drive Government bond markets. For the Fed, this keeps the path in rates still to the downside and has brought forward the pricing of the next cut from December – as it was after the recent employment report – to July.”
Tina Adatia, head of fixed income, client portfolio management at Goldman Sachs Asset Management, added: “After recent red-hot data, today’s softer than expected core CPI reading should help cool fears of a reacceleration in inflation.
“While today’s release is likely insufficient to put a January rate cut back on the table, it strengthens the case that the Fed’s cutting cycle has not yet run its course. With labour market data remaining robust, however, the Fed has scope to be patient and more good inflation data will be required for the Fed to deliver further easing.”