Forecasters expect the monthly report on US consumer prices to show a fifth month of strong increases, strengthening the case for an extended pause in interest rate cuts from the Federal Reserve.
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(Bloomberg) — Forecasters expect the monthly report on U.S. consumer prices to show a fifth month of strong increases, strengthening the case for an extended pause in interest rate cuts from the Federal Reserve.
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The so-called core CPI, which excludes food and energy, is expected to rise 0.3% in December alongside a 0.4% advance in the overall index, according to median estimates in a Bloomberg survey. The Consumer Price Index report is scheduled to be released on Wednesday by the Bureau of Labor Statistics.
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Wednesday’s numbers come at a critical time for investors and policymakers, as the yield on 10-year Treasury notes has risen more than half a percentage point amid renewed inflation concerns since the release of the Consumer Price Index last month on December 11. The average forecast of 0.3% The increase in the underlying measure masks a more contentious split among forecasters, with 39 in the Bloomberg poll predicting on average and 32 forecasting a more moderate rise of 0.2%.
Bloomberg economists Anna Wong and Chris Gee said: Collins, in a January 14 preview of the numbers: “The December CPI report is likely to fuel fears that progress in the fight against inflation has stalled.” “Market chatter is focused on whether the 10-year Treasury yield could exceed 5%. The combination of the strong CPI reading and other macro data we expect this week suggests this is a real possibility.
Here are the key elements to monitor in the report:
Rentals
Two of the most important components of the CPI — owner-occupied equivalent rent and primary housing rent — rose in November at the slowest pace since early 2021, fueling expectations that a long-awaited slowdown has finally begun. The numbers have been volatile throughout 2024, and most analysts expected somewhat higher readings for December, but volume could ultimately determine where the broader underlying index lands.
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“We expect rents for primary residences and open educational resources to accelerate, but will remain below the underlying trend this year,” Morgan Stanley economists led by Diego Anzoategui said in a Jan. 8 note previewing the report. “This is not our typical forecast, but the core CPI reading for December could reach 0.2%. A weaker recovery in rents or auto insurance could easily move the core CPI below 0.25%.
He travels
Travel-related categories – such as stays away from home, airfares, and dining away from home – are often viewed as proxies for underlying consumer demand and have generally recorded strong price increases in recent months.
Analysts are divided on hotel price expectations in particular after the stay-away-from-home category rose 3.2% in November, the fastest monthly pace in more than two years. Some expect outright declines in December, while others, like Samuel Toombs, chief U.S. economist at Pantheon, expect another strong increase.
“Travel hit record levels over the holidays; “Airline passenger numbers in December were 10% above their 2019 level,” Toombs said in a January 14 note. “In addition, average hotel room rates rose 2.8% on an unadjusted basis in December, well above the average increase of 0.3% in the previous three months, according to STR Inc. data.”
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Furnishings
After significant price declines towards the end of 2023, the pace of contraction in goods excluding food, energy, and used cars and trucks – so-called “staple goods” – slowed in 2024. In November, they rose by 0.1%, thanks in particular to a jump By 0.7% in furnishings and household supplies.
Fed officials will likely look to commodities for clues about the broader path of inflation amid concerns about the impact of the Trump administration’s upcoming policy proposals, according to Skanda Amarnath, executive director of Employ America.
“To the extent that tariff uncertainty emerges through proactive behavior, it is plausible that price increases will emerge before policy announcements,” Amarnath said in a January 13 note. “If the rise in commodities since November is repeated, we will be very cautious about expectations of further interest rate cuts.”
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