The Consumer Price Index (CPI) rose slightly above expectations in December, but showed an encouraging trend in underlying inflation.
The CPI increased by 0.4% on a seasonally adjusted basis in the last month of 2024 compared to a 0.3% jump in November while putting the 12-month inflation at 2.9%. Economists predicted a 0.3% jump and 12-month inflation of 2.9%.
However, the core CPI, which excludes volatile prices of food and gas and is the Federal Reserve’s preferred measure of inflation, has been favorable and came below expectations. It saw a jump of 0.2% and came at an annual rate of 3.2%, while economists expected a 0.3% increase and an annual rate of 3.3%.
The CPI report had a positive effect on the stock market, which rebounded following a sluggish start of the week. Benchmark S&P 500 improved by 107 points or 1.83% to close at 5,949.91, blue-chip Dow Jones Industrial Average experienced 703.27 points or 1.65% to close at 43,221.55, while the tech-heavy Nasdaq soared by 2.45% or 466.84 for a 19,511.23 points close.
Experts believe that the CPI numbers won’t change the Fed’s intention to pause with rate cuts but should calm any concerns about interest rates going up.
“Today’s CPI may help the Fed feel a little more dovish. It won’t change expectations for a pause later this month, but it should curb some of the talk about the Fed potentially raising rates,” Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, told CNBC. “And judging by the market’s initial response, investors appeared to feel a sense of relief after a few months of stickier inflation readings.”