US inflation ticks up 0.3% in December: Could interest rate cuts be pushed back?

Industry experts comment on CPI rise

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The US consumer price index rose by 0.3% in the month of December, up from 0.1% in the month of November, as the US Federal Reserve aims to make rate cuts in 2024.

While consumer price index rose, increasing on an annual level from 3.1% at end of November to 3.2% end of December, the core consumer price index shrunk from an annual rate of 4% to 3.9%. While three rate cuts have been projected for 2024 by officials, many analysts have anticipated as many as six.

Ronald Temple, chief market strategist at Lazard, said: “Move along, nothing to see here. This is another CPI report that shows inflation has moderated and will likely continue to decelerate as smaller rent increases already evident in private market data are reflected in slower CPI shelter inflation in 2024.

“This report reaffirms my expectations for the Fed to start cutting rates in May as its success in regaining price stability becomes more apparent.”

Nathaniel Casey, investment strategist at Evelyn Partners, also found the shelter index to be a telltale sign moving forward.

“Looking at the detail of the inflation report, the index for shelter continued its recent trend upwards rising by 0.5% on the month, shelter accounted for over half of the overall monthly inflation figure,” Casey said. “However, on an annual basis shelter inflation has slowed to 6.2% from its peak of 8.2% in March 2023. Having decelerated dramatically during October and November the index for energy increased by 0.4% for the month of December, as increases in electricity and gasoline were large enough to offset the decrease from natural gas.”

On a 12-month view, despite the December uptick, energy costs decreased 2%. Food, however, continued to rise in cost throughout the year, up 2.7% by end of December.

See also: A ‘Christmas present’ for the economy: Inflation plunges to 3.9%

Ryan Brandham, head of global capital markets, North America, at Validus Risk Management, said: “Latest figures could give fuel to the hawks and reinforce both the USD strength and rise in US yields we’ve seen so far in 2024.

“The latest initial jobless claims numbers, meanwhile, are again printing near one-year lows – highlighting the strength and resilience of the US labour market. Taken together, these should give the Fed a reason to wait longer before cutting rates and could make it cautious about easing policy too early. The final stretch of the path back to the 2% inflation target could be harder than the market is anticipating.”

John Leiper, chief investment officer at Titan Asset Management, agreed that rate cuts could be pushed from March, but did not feel the numbers swayed far from expectations.

“The increase is partly down to a pick-up in energy prices on a seasonally adjusted basis. It was the same story for the annual number which rose to 3.4%. Core annual inflation, whilst higher than expected, still fell from last month, marking the ninth consecutive decline, boosting confidence at the Fed that the direction of travel remains intact.

“With no change in annual wage gains and lower than expected initial and continuing jobless claims, the big picture points to a resilient economy. The holistic data set should not rock the boat too far off its existing course, with minimal impact on rate cut expectations.”

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