CPI Takeaways

10 year bond chart

The S&P 500 and Dow are up this morning as we continue to digest the data. Many market analysts have been warning about rising inflation and watching the 10 year for rate change signals (see chart). However, the CPI report today would lend me to believe inflation is still in check. Please read our complete takeaway below.

The CPI report slightly undershot estimates with December gains of 0.4% for the headline but a restrained 0.1% for the core, after 0.2% gains for both in November and flat figures for both in October. The increases rounded up from respective gains of 0.367% and 0.085%.

The y/y gain rose to 1.4% for the CPI headline from 1.2% in both October and November, while the core y/y gain remained at 1.6% for a third consecutive month. The firm headline mostly reflected a 4.0% energy pop that is extending into January, alongside a 1.4% apparel rise after a 0.9% November gain.

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Restraint for the core figures reflected a second consecutive -0.1% decline for medical care services and a -1.2% used car prices drop after a -1.3% November decline.

  • CPI rose 0.4% after a 0.2% November gain, leaving a rise in the y/y metric to 1.4% from 1.2%.
  • CPI core rose 0.1% after a 0.2% November gain, leaving the y/y metric unchanged at 1.6%.
  • The December CPI headline and core price gains rounded down from 0.367% and 0.085% respectively.
  • CPI energy prices rose 4.0% in December, while food prices rose 0.4%.
  • The MBA applications index soared 16.7% in the week ended January 8, with gains of 20.1% for the refi index and 8.0% for the purchase index.

On a moving average basis, CPI headline and core gains are trending higher, after the sharp drop with the pandemic in Q2 of last year. We have 6-month average price gains of 0.294% for the headline and 0.252% for the core that exceed respective 12-month average gains of 0.107% and 0.134%.

For the components, the headline CPI was boosted by a 4.0% jump in energy prices in December, following a 0.4% rise previously, while the services index rose by just 0.1% in December, following a 0.3% November gain.

ABS REPORT

The service component was depressed by a -0.1% drop in medical care service prices, following the same -0.1% decline in November, alongside -0.2% drop for the overall medical care index after a -0.1% November decline.

We also saw a -1.2% December drop in used vehicle prices after a -1.3% November decline, though we also saw a 0.4% rise for new vehicle prices after a -0.1% November drop.

The CPI indexes received a further lift from a 1.4% pop in apparel prices after a 0.9% November increase.

In January, a further climb in gasoline prices should support CPI gains of 0.3% for the headline and 0.2% for the core. The y/y CPI gain should rise to 1.5% from today’s 1.4%, while the y/y core price gain slips to 1.5% from today’s 1.6%.

For the December PCE chain price gains, we expect increases of 0.4% for the headline and 0.1% for the core. This would leave a y/y headline metric rising to 1.2% from 1.1%, but the y/y PCE core metric dropping to 1.2% from 1.4%. We expect y/y PCE chain price gains to climb to peaks in April of 2.6% for the headline and 2.0% for the core.

We expect December consumption declines of -0.3% for the nominal measure and -0.6% for the “real” measure, which correspond to estimated December retail sales drops of -0.2% for the headline and -0.4% ex-autos.

We expect December PPI gains of 0.2% for the headline and 0.1% for the core, and a 0.4% PPI headline rise on the old SOP basis. Trade prices should post December gains of 1.0% for imports and 0.8% for exports.

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