December CPI reading just came at 6.5% yoy growth, in line with the estimate of 6.5%

The Consumer Price Index for consumers fell 0.1 % in December on a seasonally adjusted basis after rising 0.1% in November the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 6.5% before seasonal adjustment. Here is the breakdown of contributors (Chart 1). CPI is expected to show prices rose 6.5% over the prior year, according to estimates from Bloomberg. The S&P 500 futures is now up 0.4% on the inflation news.

The index for gasoline was by far the largest contributor to the monthly all items decrease, more than offsetting increases in shelter indexes. The food index increased 0.3 % over the month with the food at home index rising 0.2%. The energy index decreased 4.5 % over the month as the gasoline index declined; other major energy component indexes increased over the month.

Chart 1 CPI YoY change

Markets are now pricing in a more than 80% chance that the Federal Reserve will hike interest rates by 25 basis points in December (Chart 2), lifting the equity markets, especially the growth stocks.

Chart 2 Target rate probability for Feb 1, 2022 meeting

When the inflation data came down, the quality growth stocks will be the beneficiaries, especially technology stocks. The undervalued technology stocks provides investors great opportunities to capture high-quality growth stocks set to rebound and outperform the market.