December US inflation data
- Prior was +1.2%
- Ex-food and energy 1.6% y/y vs +1.6% expected
- CPI +0.4% m/m vs +0.4% expected
- Prior +0.2% m/m
- Ex-food and energy +0.1% m/m vs +0.1% expected
- Prior ex-food and energy +0.2% m/m
Wage data:
- Real avg hourly earnings +3.7% vs +3.2% y/y prior
- Real avg weekly earnings +4.9% vs +4.7% y/y prior
There are no big surprises in the numbers and the initial market reaction has been tepid. On balance, the wage and inflation numbers are fractionally higher and at a pace of +0.4% m/m, the Fed will quickly hit its 2% target.
A real gut-check moment is coming in the March-June period when base effects will lead to some high headlines. The Fed says they can look through high numbers temporarily but even a hint that they're wavering would rattle markets.
Looking at the details of this report, the energy component was a driver, up 4.0%. Food pries continue to be driving perceived inflation, up another 0.4% to bring the y/y rise to 3.9%. Used vehicle prices remain up 10.0% y/y but have fallen for three straight months.
