US CPI slips a tad more than expected in December, core rate as expected

According to the US Department of Labor, the annual rate of headline consumer prices fell from 7.1% for November to 6.5% in December (consensus: 6.6%).

At the core level, which strips out the volatile food and energy components, CPI was up by 5.7% year-on-year, versus 6.0% in the month before and in line with economists' forecasts.

In comparison to the prior month, headline CPI dipped by 0.1% (consensus: -0.1%) and core CPI was 0.3% higher (consensus: 0.3%).

Dragging on the former was a 4.5% fall in energy prices on the month as petrol prices dropped by 9.4% while food price gains slowed further to 0.3%.

Core CPI meanwhile was weighed down by a 2.5% decline in used car and vehicle prices but shelter prices were up by 0.8% and by 0.5% when energy prices were excluded.

New vehicle prices dipped by 0.1% month-on-month - their first decline since January 2021.

Excluding energy, rent and owners' equivalent rent, services prices were ahead by 0.3% over the month.

Paul Ashworth, chief North America economist at Capital Economics, attributed the "overshoot" in core CPI mainly to "slightly bigger" 0.8% increases in rent and owners' equivalent rent, although he was anticipating that both would begin to slow soon.

All told, core goods price deflation wasn´t broadening out as quickly as CE was expecting, he said, but in core services - leaving shelter aside - "things appear to be moving in the right direction".

"Overall, this latest report adds more weight to our view that CPI inflation will fall more rapidly than the Fed expects this year.

"But the Fed isn’t going to stop raising interest rates until it sees accompanying evidence of an easing in labour market conditions and wage growth. It will be a couple more months before that evidence is also irrefutable."

"The trend in the core-core tends to track the rate of growth of hourly wages, which is now clearly slowing. The Fed now has enough information, we think, to take the idea that inflation has turned much more seriously," chipped in Ian Shepherdson, chief economist at Pantheon Macroeconomics.

"We stick with our forecast of a 25bp hike on Feb 1, and then no further increases. Hammering away at an economy where disinflationary pressure already is clear, long before the full effect of the tightening so far have been felt, is very hard to justify."

For their part, economists at Barclays Research said: "The CPI report leaves our baseline FOMC call for a 50bp increase in the funds rate at the February meeting intact, though it likely raises the probability of a smaller hike of 25bp, with some recent Fedspeak appearing cautiously supportive of a smaller move."