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December Core CPI Slows to 3.2%, Driving U.S. Stock Surge

Stock SpotlightWednesday, Jan 15, 2025 9:27 am ET

1min read

The U.S. Consumer Price Index (CPI) for December aligned with expectations, while the core CPI growth came in below projections. December CPI rose by 2.9% YoY, while core CPI, excluding food and energy, increased by 3.2%, slightly below the anticipated 3.3%.

Following the release, the dollar index dropped by 0.5%, U.S. equity futures rose by more than 1%, and U.S. Treasury yields plummeted as markets increased their bets on Federal Reserve rate cuts.

Key Details and Sector Insights

Shelter Prices: Shelter costs, the largest component within services, increased by 0.3% for the second consecutive month in December. Subcategories such as owners' equivalent rent and rent of primary residence both edged up after experiencing the smallest gains since 2021.

Ex-Housing and Energy Services: Prices in this category rose by just 0.2%, marking the smallest monthly increase since July. However, housing and airfare inflation remained relatively strong contributors.

Impact of LA Wildfires: Wildfires in Los Angeles presented a minor upward pressure on CPI. According to Morgan Stanley economists, the fires could have boosted core CPI by 0.04 to 0.09 percentage points, primarily due to surging vehicle and rental prices.

Broader Economic Context

It's worth noting that one favorable data point is not enough to solidify trends. A series of subdued inflation readings will be required to convince Federal Reserve officials that inflation control efforts are back on track. Coupled with last week's robust jobs report, policymakers are widely expected to maintain interest rates at their upcoming meeting later this month.

However, traders are increasingly betting on a rate cut by July, compared to earlier predictions of a September timeline.

Tariff-Related Inflation Concerns

Uncertainty surrounding Trump's tariff policies remains a factor contributing to inflation volatility. Last week, JPMorgan economists estimated that a universal 10% tariff—one of Trump's proposed options—could raise consumer prices by 0.3 to 0.6 percentage points, depending on the extent of dollar appreciation.

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