Macro Report

**Flash Report – Inflation Data**


The CPI print came in above expectations with a YoY increase to the Headline print and Core (ex. food and energy) prices cooling less than forecaster estimates. After a few months of clear downward price pressure, this print does not reverse the overarching trend, but rather, highlights the fact that getting prices under control will be a long process.


Headline YoY (dotted, below) prices increased from 3.1% to 3.4% in December (can be attributed entirely to the increase in gasoline prices) while Core (solid) dipped from 4% to 3.9%.

This print clearly shows the road to getting inflation back to the FED’s 2% target will be a bumpy one and supports recent talking points from FED officials, that while the next move for the Fed Funds rate will likely be a cut, no one is chomping at the bit to start. This is also supported by the fact that the labor market continues to hold up significantly better than anyone had expected when the hiking cycle began. In contrast, the market is pricing in the first rate cut at the March meeting.

The good news for the future is that two most reliable 1-year inflation expectations surveys both point to further disinflation. Respondents to the University of Michigan survey (published 12/22) expect inflation at 3.1%, next year, while the NY Fed (published 1/8) is printing at 3.01%.

The immediate market reaction was treasury yields slightly higher, dollar stronger, and global metals down on the release. Since then, those moves have been retraced after digesting the continued downtrend in Core prices and now the market is essentially flat.

University of Michigan (white) & NY Fed (blue) 1-year Inflation Expectations