The U.S. monthly consumer prices for December showed mixed revisions, according to the latest data published by the Labor Department. While the overall inflation revisions were a mix of positive and negative, the revisions did not change the expectations regarding the timing of an anticipated interest rate cut from the Federal Reserve this year. The revisions did not significantly alter the path of inflation, which has been moderating after a surge in 2022. The revised Consumer Price Index (CPI) data had been eagerly awaited by financial markets and economists, making it a key data point in the ongoing fight against inflation.
Revisions and Key Findings
The revised CPI data showed that consumer prices rose 0.2% in December, slightly lower than the previously reported 0.3%. However, the data for November was revised up to show a 0.2% increase, higher than the previously estimated 0.1%. The 3-month annualized increase in the CPI was revised up to a 1.9% rate, indicating a modest acceleration.
The revisions were primarily driven by the recalculation of seasonal adjustment factors, a routine procedure undertaken by the Bureau of Labor Statistics (BLS) every year. These adjustments help to strip out seasonal fluctuations from the data. The year-on-year data, which is not seasonally adjusted, remained unrevised.
Impact on Core CPI and PCE
The core CPI, which excludes food and energy prices, increased by 0.275% in December, which was rounded up to 0.3%. This was a slight revision downward from the previously reported 0.309%. In November, the core CPI was revised up to 0.308%, compared to the previously estimated 0.285%. The 3-month increase in the core CPI inflation rate remained unchanged at 3.3%.
Economists anticipate that the revisions to the CPI will have a minor impact on the personal consumption expenditures (PCE) price indexes data for the fourth quarter. The PCE price indexes are the inflation measures tracked by the U.S. central bank for its 2% inflation target.
Expectations and Outlook
Financial markets expect the Federal Reserve to start cutting interest rates sometime in the first half of this year. The revisions to the CPI data, while mixed, did not change these expectations. The Fed has raised its policy rate by 525 basis points since March 2022, bringing it to the current range of 5.25% to 5.50%.
Looking ahead, economists forecast that inflation will cool considerably this year. The Reuters survey of economists suggests that the CPI is likely to increase by 0.2% in January, which would lower the annual increase in prices to 3.0% from 3.4% in December. The core CPI is forecasted to advance by 0.3%, with the year-on-year increase slowing to 3.8% from 3.9% in December.
The mixed revisions to the U.S. consumer prices for December did not change the expectations on the timing of a potential interest rate cut from the Federal Reserve this year. While the revisions showed slight adjustments to the CPI data, they did not materially alter the path of inflation. Economists anticipate that inflation will cool considerably in the coming months. The revisions serve as an important data point in the ongoing fight against inflation and are closely monitored by financial markets and policymakers.