The government announced that December's inflation is lower than initially reported

Find out why December’s prices only nudged up by 0.2%, revealing a potential path for the Federal Reserve to consider interest rate cuts in the near future.

By Aatar Ata | Founder and Senior Author of Aatar X

4 min read — February 09, 2024

Hey there! So, turns out the prices we, as consumers, deal with in the market didn’t jump as much as initially thought. The government spilled the beans on this during Friday’s update.

The tweaks to the consumer price index spilled the tea that the overall cost of goods and services only went up by 0.2% for the month. That’s a smidge lower than what was first reported at 0.3%, according to the Bureau of Labor Statistics under the Labor Department.

Now, even though this might seem like small potatoes, it backs up the idea that inflation was taking it easy as 2023 wrapped up. And guess what? That gives the Federal Reserve some wiggle room to think about cutting interest rates later this year.

Now, these revisions are kinda of routine for the BLS, but this time they got a bit more attention. Last year, the market did a double-take with some serious reactions to changes like these. Signs pointing to more inflation in 2022 than expected made Treasury yields jump, and folks started worrying that the Fed might play it safe with a stricter monetary policy.

One of the Fed bigwigs, Christopher Waller, even put the spotlight on the 2022 revisions, making it a hot topic in the latest round of updates.

When we talk about core CPI, excluding food and energy, it went up by 0.3% for the month – the same as the initial report. The Fed folks like keeping an eye on these core measures because they give a better picture of the long-term trends in inflation.

Oh, and by the way, the headline number for November got a little upgrade too. It went up by 0.2% instead of the initial estimate of 0.1%.

So, summing it up, these revisions suggest that the headline CPI increased at a yearly rate of 2.7% in the last quarter of the year. It’s a bit lower, down by 0.1 percentage point from what we first heard, according to Ian Shepherdson, the chief economist at Pantheon Macroeconomics.

Calling these revisions a bit of a letdown, Paul Ashworth, the chief economist for North America at Capital Economics, mentioned that they could still have a say in what the Fed decides.

“Since some Fed officials were worried about a repeat of last year — when the revision pushed up the monthly changes in core prices in the final few months of last year — the lack of any meaningful change this year, at the margin at least, supports an earlier May rate cut,” Ashworth added.

Now, the Fed’s MVP is the personal consumption expenditures price index when it comes to inflation. CPI readings play into the Commerce Department’s PCE calculation. The key difference is, that CPI shows us what things cost, while PCE adjusts for what we buy, considering how our buying habits change when prices go up and down.

And after all this data dropped, there wasn’t much movement in the futures market pricing.

Traders are still thinking the Fed will keep its overnight borrowing rate steady when they meet in March. After that, there might be a cut in May, followed by four more quarter-point reductions by the end of the year, according to projections from the CME Group.

Aatar Ata

Founder & Author at Aatar X

I'm Aatar Founder and Senior Author of Aatar X with 6 years of writing experience. I have also completed 150+ projects of writing on Upwork. If you have any questions contact me at aatarata1@gmail.com