• Core CPI rose 0.3% MoM and remained at 3.9% YoY

• Core services inflation remains sticky

• Core goods prices were flat

• Sticky US inflation reduces chances of an early Fed rate cut

US consumer price data showed that inflation still holding a grip on the US economy, suggesting it was probably too early for the Federal Reserve to start cutting interest rates.

US consumer prices rose 3.4% annually to close out 2023, capping a year of substantial progress on efforts to rein in painfully high inflation. The Consumer Price Index rose 0.3% MoM in December. The monthly and annual numbers for December were higher than those seen in November, when tumbling gas prices drove the overall index lower. Despite the acceleration, the annual rate of consumer-level inflation is down considerably from December 2022’s rate of 6.5%. Inflation averaged 4.1% in 2023, down from 8.0% in 2022. After having declined in each of the two months prior, energy prices inched higher by 0.4% MoM in December, due to in uptick in electricity costs (1.3% MoM) and slightly higher prices at the pump (+0.2% MoM). Food prices matched last month’s gain of 0.2% MoM. The index for food at home increased 0.1% MoM. The index for meats, poultry, fish, and eggs rose 0.5% in December, led by an 8.9% increase in the index for eggs. The index for other food at home rose 0.1% MoM. The food away from home index rose 0.3% in December, after rising 0.4% in November. Overall, food prices were up 2.7% YoY.

Excluding food & energy, core prices rose 0.3% MoM. The twelve-month change fell 0.1 percentage points to 3.9% – the slowest pace of growth since May 2021 – while the three-month annualized rate of change dipped to a softer 3.3%. The core CPI was driven by higher shelter costs, which increased 0.5% MoM after climbing by 0.4% in November as rent of primary residence (+0.4% MoM) notched sizeable gains. Owners' equivalent rent, a measure of the amount homeowners would pay to rent or would earn from renting their property, also rose 0.5% after a similar gain in the prior month. The CPI shelter category was up 6.2% YoY.

Goods price deflation stalled amid the second straight monthly increase in the cost of used cars and trucks, which more than offset declines in household furnishing and apparel. Goods prices rose 0.1% after dropping 0.7% in November. Core goods prices were flat, an apparent stalling out after six months of declines.

However, core services prices have consistently been more stubborn. They were up 0.4% on a monthly basis, a modest deceleration from November’s 0.5% gain, and 5.3% for the year. Services inflation tends to be “stickier” than goods because there are more factors that play in to those prices, including wages and other labor costs. Non-housing services decelerated on a monthly basis, but still grew by a relatively strong 0.4%, while the 12-month change continues to hover at an elevated 3.9%. Excluding housing, the “supercore” measure of core services minus rent has showed some progress in recent months, but it’s sitting at an annual increase of 6.8% as of December.

Source: BIMB Securities Research - 12 Jan 2024