By Gregory Heym, BHS Chief Economist and and host of Crossing The Line
After last week's jobs report ruined our weekend, we desperately needed some good news on inflation. Luckil, the PI brothers delivered big time, so welcome to the "What a difference a week makes" edition of The Line.
Core Inflation Lower than Expected in December
After last week’s much-better-than-expected jobs report pushed mortgage rates higher and creamed stocks, we needed a hero to come through and save the day. Luckily, the PI brothers—that’s short for the consumer price index and the producer price index—were up to the task.
Core CPI—which excludes food and energy prices—rose 3.2% over the past year. Now that may sound bad considering the Fed has a 2% inflation target, but since markets expected the figure to be 3.3% it’s all good. As soon as the data was released at 8:30 Wednesday morning, stock futures rose sharply, erasing the memory of last Friday’s huge decline.
My loyal readers will remember that every month I point out that housing is responsible for a huge part of the monthly increase in CPI. While that’s still true, we are seeing housing prices start to ease. Over the past year, housing inflation rose 4.6%, its smallest annual increase in three years.
You add this good news to the latest PPI data which showed a less-than-expected rise in producer prices, and we should all be smiling, at least for now.
December Retail Sales Slightly Below Expectations
Retail sales rose 0.4% last month, coming in below the 0.6% forecast. While that’s a tad disappointing, it’s important to point out that November’s figure was revised to a 0.8% increase, so we shouldn’t be surprised December came in lower.
Looking at spending by category, what stands out the most is the 0.3% decline in sales at restaurants and bars; their first decline in nine months. That said, 10 out of the 13 categories reported on showed an increase in sales last month, very good news for the economy. In their latest forecast for 4Q24 GDP, the Atalanta Fed is predicting a 3.0% annual rate of growth.
Remind me again why the Fed is cutting rates when the economy is growing at a 3% rate, and unemployment is at 4.1%?
