Daily Management Review

Despite Mixed Revisions In US Consumer Price Slow Inflation Trend Persists


Despite Mixed Revisions In US Consumer Price Slow Inflation Trend Persists
The December increase in U.S. monthly consumer prices was smaller than first estimated, but overall inflation revisions were varied and did not change predictions regarding when the Federal Reserve would likely cut interest rates this year.
The Labour Department's yearly adjustments, which were released on Friday, also revealed that the consumer price index increased somewhat higher than October and November's initial reports.
From October through December, prices were unrevised after rounding and did not include the volatile food and energy components. In summary, the changes have not significantly changed the trajectory of inflation, which began to rise in 2022 and is now declining.
Financial markets and analysts had been anticipating the revised CPI figures since Federal Reserve Governor Christopher Waller highlighted them as one of the important data points he would be monitoring as decision-makers attempt to assess the effectiveness of their efforts to combat inflation last month.
"The revisions were much ado about nothing," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin. "This is becoming a trend where a Fed official mentions a data release once and then everyone waits with bated breath only to find out that it's a bunch of noise."
The revisions of the CPI statistics released by the Labour Department's Bureau of Labour Statistics (BLS) showed that the consumer price index increased by 0.2% in December rather than the 0.3% reported last month. However, data for November was updated, indicating that the CPI increased by 0.2% as opposed to the previously predicted 0.1%.
In October, the CPI increased by 0.1%. It was previously claimed that October prices remained unchanged. The CPI's three-month annualised growth rate was adjusted from 1.8% to 1.9%.
The government's approach for removing seasonal changes from the data, seasonal adjustment factors, was recalculated, which led to the modifications.
The statistics from January 2019 through December 2023 were covered by this annual routine procedure that the BLS conducts. There was no revision to the year-over-year data, which is not seasonally adjusted.
In December, the CPI increased by 0.275%, or 0.3%, when food and energy were excluded. That was adjusted to 0.3% after being amended down from 0.309%. In November, the so-called core CPI was revised upward to 0.308%, or 0.3%.
It was earlier stated to have climbed by 0.285%, or 0.3%, in November. The core CPI inflation rate increased by 3.3% over a three-month period, remaining constant.
Although the decline in core goods prices was not as sharp as initially anticipated, the cost of services growth for November and December was revised down.
In November and December, the increase in services (excluding rent) was lowered downward.
"This should give more support to the Fed that strong growth and jobs are not causing an acceleration in inflationary pressures," said Ellen Zentner, chief economist at Morgan Stanley in New York.
Wall Street stocks were rising in value. In relation to a currency basket, the dollar remained stable. Treasury bond prices declined.
The U.S. central bank is expected by the financial markets to begin reducing interest rates at some point during the first half of the year. The Fed has increased its policy rate by 525 basis points since March 2022, bringing it to the current range of 5.25% to 5.50%.
After adjustments last year revealed that inflation was slightly warmer in the second half of 2022 than previously believed, the 2023 data was interesting. The personal consumption expenditures (PCE) price index data for the fourth quarter, which are the inflation measures monitored by the U.S. central bank for its 2% inflation target, showed a slight influence from the CPI adjustments, according to economists.
"On the whole for October-December ... we look for basically no revision to the monthly changes to the core PCE data on net, with the December change revised down by 0.02 percentage point but offsetting upward revisions to the earlier months," said Daniel Silver, an economist at JPMorgan.
December saw a 0.2% month-over-month increase in the core PCE price index, which increased 2.9% annually.
Additionally, as of next Tuesday, when the report for January is released, the BLS revised the spending weights that are used to compute the CPI. The weighting of housing is now higher, with rents at the centre. With reductions to new and used motor vehicles, the transportation sector's contribution was reduced. There will also be modifications made to the process used to determine the cost of used automobiles and trucks.
Deflation of goods has been mostly caused by used vehicles and trucks. This year, rents—which have contributed significantly to the rise in inflation—are predicted to decline significantly. This implies that rents may balance the expected reduction in the core inflationary pressure from automobiles.
Economists surveyed by Reuters predicted that the CPI rose by 0.2% in January. As a result, the yearly price rise would drop from 3.4% in December to 3.0%. Forecasts were that the core CPI would rise by 0.3%, with the annual growth rate decreasing to 3.8% from 3.9% in December.
This year, inflation is predicted by economists to decline significantly.
"These weight shifts are likely to tilt risks to the upside for core price pressures in the near term, just mechanically, but on balance, we don't foresee this as having a material effect on our baseline forecast," said Pooja Sriram, an economist at Barclays in New York.