Morning Report: CPI rises more than expected

Posted on January 11, 2024 by Brent Nyitray

Vital Statistics:

Stocks are lower after the Consumer Price Index came in hot. Bonds and MBS are down.

Prices at the consumer level rose 0.3% month-over-month and 3.4% year-over-year. This was above Street expectations. The core rate rose 0.3% month-over-month and 3.9% year-over-year. Again, these numbers were hotter than expected.

The increase in shelter accounted for about half the increase, and has been the dominant factor in the price indices for some time. Another notable increase was car insurance, which was up 20% year-over-year.

The trend is still down for the core rate on an annual basis, although the decreases are becoming becoming smaller. Like losing weight, the first few pounds are pretty easy, but the last few can be a battle.

The reaction in the Fed Funds futures was pretty muted. The markets pretty much took the Jan hike off the table, however there is still a 64% chance of a cut in March. Longer-term the futures didn’t move that much.

For the Fed, inflation may be falling at a slower rate than expected, but it is still falling. That means inflation-adjusted interest rates are increasing even though the Fed has been holding the Fed Funds rate steady. This is why the Fed can cut rates even though inflation is higher than they would like. The real Fed funds rate is the highest in 15 years.

Retailers had a decent holiday season, according to numbers from the CNBC/NRF Retail Monitor. The index, which excludes gasoline rose 0.8% in November and 0.4% in December. The core gauge, which strips out restaurant spending rose 0.2% in December and 0.7% in November. On a year-over-year basis, spending rose 3.1%.

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