Core CPI Prints Cooler Than Expected In December, Near 5 Year Lows

On the heels of ‘solid’ labor market data from BLS (lower unemployment), ADP (weekly employment change remaining positive), and a rebound in Small Business Optimism; this morning we get a glimpse of the other side of The Fed’s mandate as the last CPI print for 2025 prints. From what we can tell, President Trump did not drop any hints this time ahead of the release which was expected to be flat from November’s prints.

The headline CPI print rose 0.3% MoM (vs +0.3% MoM exp) driving prices up 2.7% on a YoY basis (vs +2.7% YoY exp)…

Source: Bloomberg

Many expected a December pickup due to the unwinding of distortions from data-collection disruptions during the government shutdown, which amplified seasonal discounting in November.

Under the hood, Goods inflation was unch while Services and Food led the price increases…

Source: Bloomberg

Overall shelter inflation continues to slide on a YoY basis:

• December Shelter inflation up 0.4% MoM, translating into 3.2% YoY, down from 3.3% YoY in Nov

• December Rent inflation up 0.3% MoM, translating into 2.9% YoY, down from 3.3% YoY in Nov

The more stable (and most watched) Core CPI was expected to rise from +2.6% YoY to +2.7% YoY but was surprisingly cooler up just 0.2% MoM and steady at +2.6% YoY – the lowest since March 2021…

Source: Bloomberg

Core Goods saw deflation on a MoM basis while Services prices accelerated a little…

Source: Bloomberg

The Fed’s ‘old favorite’ inflation signal – SupreCore (Services Ex-Shelter) – slowed once again on a YoY basis, now at its slowest since Sept 2021…

Source: Bloomberg

Recreation Services saw a significant jump on a MoM basis while Education Services saw notable deflation MoM…

Source: Bloomberg

And if you want someone to blame for higher prices – it’s your Recreational time…

Source: Bloomberg

…with a record increase in Movie & Sports Admission costs… World Cup & UFC?

Source: Bloomberg

This is clearly a more convincing sign that inflation is on a downward path after November’s shutdown-distorted data.

According to JPM’s Market Intel team, this is the market reaction matrix, and probability:

• Core MoM prints above 0.45%. SPX loses 1.25% – 2.5%: Probability 5.0%

• Core MoM prints between 0.40% – 0.45%. SPX gains 0.25% to loses 75bps: Probability 32.5%

• Core MoM prints between 0.35% – 0.40%. SPX gains 0.25% to 0.75%: Probability 40.0%

• Core MoM prints between 0.30% – 0.35%. SPX gains 1% – 1.5%: Probability 20.0%

• Core MoM prints below 0.30%. SPX gains 1.25% – 1.75%: Probability 2.5%

Finally, for now, we seem to be avoiding a 1970s redux in Fed policy error helping to re-ignite an inflationary rebound…

Source: Bloomberg

…but time will tell.