December CPI Released – Inflation Declining

The biggest economic report to come out this week — arguably for the full month, with a new Fed meeting commencing at the end of it — is out this morning: the Consumer Price Index (CPI) for December brings a headline number of -0.1% month over month, as analysts had expected, and swinging to a negative from an unrevised +0.1% the previous month. Core — stripping out volatile food and gas prices — reached +0.3% month over month, also in-line with expectations and a tick above the unrevised +0.2% the last time around.


Both of these figures continue to depict gradually declining inflation in the U.S. economy, as today’s headline delivers the first negative number since May 2020.

Year over year is where the primary focus remains, and here we see estimates matched exactly with expectations, as well: headline CPI year over year has descended to +6.5% from an unrevised +7.1% for November — a 60 bps drop month over month, which is considerable, and 200 bps lower than we found ourselves in June of last year, which brought us a harrowing +9.1%, which is also the highest level we’d seen since ’81.

Core CPI, year over year, also met estimates exactly: +5.7%, down 30 bps from the previous print. This is notable because we’d been seeing core CPI ticking up even as headline numbers would continue to melt away. September ’22 was the high mark at +6.6%; we’re now down three straight months on core year-over-year CPI, six straight downward on headline year over year.

Overall, inflation gradually declining is exactly what we want to see to avoid a more severe recession and increasing rate hikes. We would like to see the job market cool, and until it does, expect the Fed to continue its more modest (as of late) hiking campaign and pause by Q3 of this year. A tight labor market continues to be good news is bad news.

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Data and market commentary pulled from Zack’s Professional Services Newsletter on 01/12/2023.