U.S. year-on-year total CPI consumer inflation accelerated in December 2024 to 2.9%. January economic growth reports that will be released this week are likely to be generally positive, including retail sales and industrial production. “No news is good news,” writes David Russell, global head of market strategy at TradeStation. “Inflation has stopped falling, but it isn’t enough of a problem to derail this bull market. Inflation and the Fed are becoming less of a catalyst. Attention could now shift to the incoming administration’s tariff policy.” Economists are wondering if a moderate inflation decline in July will be enough to convince skeptical Federal Reserve officials to begin lowering interest rates. The new data shows that inflation picked up speed at the start of the President Trump’s second administration, which has signaled its intention to enact broad-based tariffs, including newly announced 25% tariffs on all steel and aluminum imports.
What You Need to Know Ahead of Tuesday’s Closely Watched CPI Inflation Report
- The prediction market Kalshi pegs July CPI at a 2.9% annual rate currently, this also suggests the July’s CPI report should continue the disinflation trend in the U.S..
- As of December 11, futures traders assigned a 95% probability to the Federal Open Market Committee (FOMC) cutting the short-term federal funds rate by 25 basis points (bps), or 0.25%, at the next Fed meeting.
- But even core inflation—which excludes the more volatile food and energy prices— warmed up last month; the metric had been more stable amid the fallout from bird flu and higher oil prices.
- Morgan Securities LLC Form CRS and Guide to Investment Services and Brokerage Products.
- Of course, even dismissing some of the uptick, the January data aren’t a good reading for Federal Reserve officials—especially when it comes to the so-called supercore measure, which excludes food, energy, and housing.
- On a monthly basis, the CPI rose 0.4%, following the 0.3% increase recorded in the previous month.
The unemployment rate has now risen to 4.3%, a 0.8 percentage point increase over the past year that has triggered a time-tested recession flag known as the Sahm Rule. “We think the Fed is likely to remain in ‘wait and see mode’ for the time being and anticipate the Fed staying on hold at next month’s meeting.” The report, which marks the fourth consecutive month of higher inflation, showed that the following items saw price increases on a month-over-month basis. It appears likely that July’s inflation report will sustain the trend of relatively subdued inflation from recent months, according to nowcasts. That trend alone may be sufficient for the FOMC to lower rates in September, as markets broadly anticipate.
Core Inflation Accelerates to 3.3%
The January ISM Manufacturing Index rose to 50.9, the strongest level since September 2022. Meanwhile, the ISM Non-Manufacturing Index decelerated to 52.8 but continued to expand with a reading above 50, reflecting ongoing growth in the services sector. Plus, weekly initial jobless claims remained low at 219,000, while the latest JOLTS report from the U.S. The only truly weak economic data last week was a significant decline in December factory orders by 0.9%. When gauging inflation trends, economists and policymakers at the Fed pay especially close attention to “core” measures of inflation, which exclude axitrader review prices for food and gas.
- President Trump has already announced the imposition of tariffs on some of America’s trading partners, and we assume there will be more levies, which will be matched by foreign retaliation, in the coming quarters.
- “Progress on cooling inflation appears to have resumed in the second quarter, keeping Fed rate cuts on the table for later this year, though the exact timing will remain ‘data dependent,’” Scott Anderson, Chief U.S. economist at BMO Capital Markets, wrote in a commentary.
- More sweeping tariffs on a range of countries are likely as soon as this week, Trump has said, a strategy economists say would push up prices more sharply.
- He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor’s Business Daily, among other publications.
- On an annual basis, headline CPI rose 2.9%, according to the Bureau of Labor Statistics.
- After the release of the January jobs report on February 7, the dollar and bond yields rose while equity and bond prices fell.
- According to the release of the FOMC Minutes of the December meeting, Fed officials voiced worries about growing risks of inflation trending higher and highlighted how potential shifts in trade and immigration policies could complicate efforts to bring it under control.
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Consumer Price Index and Inflation
Fed officials had forecast two rate cuts this year, the first likely coming in June. Futures markets now expect just one rate decrease toward the end of the year. American airline aktie And with the labor market still chugging along, some economists figure the Fed will forgo rate cuts in 2025. Inflation picked up for a fourth straight month in January amid another rise in in food and energy costs, possibly setting the stage for a year of halting progress in the battle to slow consumer price increases as President Donald Trump rolls out myriad import tariffs.
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“It will likely take similar well-behaved inflation data in August (or a higher jobless rate) to assure a majority of voting members on the FOMC that inflation is moving convincingly to the 2.0% target,” wrote Priscilla Thiagamoorthy, senior economist at BMO Capital Markets. While consumers and business owners continue to express concern over high prices, the trend indeed has shifted. Tuesday’s producer price index, or PPI, report for July helped confirm optimism that the elevated inflation numbers that began in 2021 and spiked again in early 2024 are in the rearview mirror. Because tariffs are essentially taxes on imports that are largely passed through to U.S. consumers, Mr. Trump’s import duties, if enacted, could push inflation higher in 2025, economists are forecasting. “This is not a good number,” Brian Coulton, chief economist at Fitch Ratings, said in an email of January’s CPI data. “This is almost starting to look like a re-run of the first half of 2024, when inflation surprised everyone (including the Fed) on the upside.”
What To Expect From February’s CPI Inflation Report
But after potentially easing, inflation is poised to accelerate again in the second half of the year, Barclays said. Trump has announced hefty tariffs on Chinese imports and steel and aluminum shipments and has delayed levies on Canada and Mexico that may still take effect in early March. Rent hikes, a big inflation driver, are likely to keep moderating and pay increases are poised to slow further, Barclays said. Last month, the cost of eggs soared 15.2%, the latest in a flurry of increases amid a two-year bird flu outbreak.
However, stubbornly high rent increases could keep “core” CPI, which excludes food and energy prices, from falling too much. Fed watchers have been expecting rate cuts for months as inflation has cooled, only to be repeatedly disappointed. Forecasters are anticipating January’s report to more than wipe out an unwelcome inflation uptick in December.This and other inflation reports over the next few months could be key in determining how soon, and how quickly, the Federal Reserve will cut its benchmark interest rate. Falling energy prices and a slowdown in food price increases could reduce the overall inflation rate, economists at RBC said in a commentary. The Federal Reserve’s policy-setting committee has said they’re looking for economic data—especially inflation reports—to show that consumer prices are firmly on the path down to a 2% annual rate before they’ll cut interest rates. The central bank has maintained its key fed funds rate at a 23-year high since last July, pushing up borrowing costs for mortgages and other loans, in hopes of slowing the economy and stifling inflation.
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail. Fed Chair Jerome Powell is addressing the House of Representatives on Wednesday morning and could shed some additional light on how policymakers are considering the stalled out progress on cooling inflation at this point. In fact, the core goods deflation that drove much of the relief in inflation over the past two years is fading fast.