JPMorgan's Take on December CPI: Inflation's Last Mile

As we step into 2025, investors are eagerly awaiting the December Consumer Price Index (CPI) report, set to be released on Wednesday, January 15. This report will provide crucial insights into the state of inflation and the potential direction of Federal Reserve policy. JPMorgan, a leading global financial services firm, has been closely monitoring the inflation landscape and has shared its projections for the December CPI report.



JPMorgan's economists expect the December CPI report to show another month of sticky inflation, with the headline CPI rising 0.3% on a monthly basis and the annual inflation rate inching up to 2.8%. Core CPI, which excludes volatile food and energy prices, is forecast to rise 0.2% in December, keeping the annual rate steady at 3.3%. While headline inflation has been slowing, core inflation has remained relatively sticky, indicating that the Fed's battle against inflation is not yet over.

One of the key sectors contributing to the inflation rate has been shelter, which accounts for a third of the total inflation basket. Shelter inflation has remained sticky, with the shelter component increasing by 0.4% month-over-month and 4.9% year-over-year in October 2024. However, economists widely expect shelter inflation to fall as the data catches up with ongoing declines in rent prices. If shelter inflation subsides, core inflation should return to normal, which is expected to be around 2%.

Another sector that has contributed to inflation is used cars. Used vehicle prices rose by a sharper 2.7% in October 2024, following a 0.3% rise the month prior. This increase partly reflects the impacts of Hurricanes Helene and Milton, which caused evacuations and led to increased demand for used vehicles. As these temporary factors dissipate, the used car market is expected to stabilize, and prices should not contribute as much to inflation in the coming months.



The CPI report will also provide insights into the potential direction of Federal Reserve policy. If the report shows a higher-than-expected CPI reading, it could lead to a more hawkish Fed, which could be negative for equity markets as higher interest rates make borrowing more expensive and could slow economic growth. However, a lower-than-expected CPI reading could lead to a more dovish Fed, which could be positive for equity markets as lower interest rates make borrowing cheaper for companies and consumers.

In conclusion, the December CPI report will be a critical indicator of the state of inflation and the potential direction of Federal Reserve policy. JPMorgan's projections for the report suggest that inflation may be moderating, but core inflation remains relatively sticky. As investors await the report, they should consider the potential implications for bond and equity markets, as well as the broader economy. By staying informed and making data-driven decisions, investors can navigate the ever-changing landscape of the financial markets and position themselves for success in the year ahead.