December Inflation - Core Up Less Than Expected

Overall December inflation levels were unchanged from November and aligned with forecasts while underlying inflation levels (core; excludes food and energy) rose less than expected month-over-month – a potential signal of cooling price growth.  In December prices rose 2.7% compared to a year ago and 0.3% compared to November.  Core inflation rose 2.7% year-over-year and 0.2% month-over-month.  Today’s numbers are arguably more reliable than November reporting which was complicated by shut-down related caveats.  In December, the FOMC lowered interest rates for a third straight meeting to guard against labor market uncertainty.  Fed officials are widely expected to hold interest rates steady at their next meeting later this month, but if inflation remains manageable, we would expect policymakers to favor accommodation in support of the labor market in the year ahead.

• Consumer prices (CPI) increased 2.7% year-over-year. In December, the consumer price index (CPI) increased 2.7%, unchanged from November and in line with expectations.  The cost of medical care services (+3.5%) shelter (+3.2%), and food (+3.1%)  were key contributors to the overall increase, offsetting declines at the pump (-3.4%) and lesser increases on new and used vehicles.  Core CPI (excludes food and energy) increased 2.6% year-over-year, unchanged from November but below expectations for 2.7%.
• Consumer prices (CPI) rose 0.3% month-over-month.  In December, consumer prices rose 0.3% month-over-month matching expectations.  Core CPI (excludes food and energy) increased 0.2% month-over-month, below expectations for an increase of 0.3%.