December’s Consumer Price Index (CPI) showed a 0.4% inflation increase, pushing the annual rate from 2.7% to 2.9%. However, when we exclude food and energy prices, the Core measure was below expectations with a 0.2% rise. Annual Core CPI dropped to 3.2% after remaining at 3.3% for several months, sparking a bond rally on Wednesday.
What’s the bottom line?
Rising energy costs drove over 40% of the overall increase in December’s headline inflation. Food prices also didn’t help as they rose by 0.3%. However, shelter costs showed signs of easing. As shelter accounts for nearly 46% of Core CPI, lower shelter costs could help inflation move towards the Fed’s 2% target over time.