CPI +0.3%, +2.7% Year over Year: Exactly In-Line

Wednesday, December 11, 2024

The biggest economic data for this week came out ahead of this morning’s opening bell: November Consumer Price Index (CPI) numbers, which help determine the ongoing rate of inflation, came in exactly as expected. Pre-market futures jumped on the news.

The Dow is currently +91 points. The S&P 500 has gained +25 points and the Nasdaq is +126. Directly ahead of the CPI report, these figures were +11, +5 and +65 points, respectively.

CPI for November In-Line with Expectations

Headline month-over-month CPI came in at +0.3%, exactly as anticipated and in-line with the previous month. The core CPI print (stripping out volatile food and energy prices) month over month also reached +0.3% — as expected and also for the fourth-straight month. In June we had been down to +0.1%, so we’ve gotten and stayed warmer subsequently.

Headline year-over-year CPI is also known as the Inflation Rate, and this too came in-line with expectations: +2.7%, 10 basis points (bps) ahead of the prior month, also as expected. Core CPI year over year reached +3.3% — as expected and in-line with October’s print. This is the third month in a row at that level; the low of the year was +3.2% in July and August, and the high was +3.9% in January.

What to Expect from Interest Rates Based on CPI Numbers?

Yesterday in this space, we felt the pending Fed decision to lower interest rates 25 bps (to 4.25-4.50%) would go on as anticipated, unless there was a big surprise to the upside. There wasn’t any surprise at all. Even though inflation numbers appear stubbornly higher than the Fed’s optimal +2.0%, lowering rates to levels still above 4% are seen as reasonable going into next week’s FOMC meeting.

What we also know is the Fed is not interested in bringing down rates low enough to allow hotter inflation to creep back into the economy; the last thing Fed Chair Jerome Powell wants to do is lower rates, only to turn around and have to raise them again: stability is a virtue as far as the Fed is concerned.

Thus, the 2025 dot-plot for interest rates is very much in question. We expect — next Wednesday, when the final Fed meeting of the year concludes — that Powell will take pains to explain the thinking of the Fed going into the new year. And while a 25 bps cut at first blush looks like a tailwind for the market, the prospect of keeping rates above 4% well into the new year would likely have a cooling effect.

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