NEW YORK (Reuters) – U.S consumer prices unexpectedly fell for the first time in more than 2-1/2 years in December amid declining prices for gasoline and other goods, suggesting that inflation was now on a sustained downward trend.
The consumer price index dipped 0.1% last month after gaining 0.1% in November, the Labor Department said on Thursday. That was the first decline in the CPI since May 2020, when the economy was reeling from the first wave of COVID-19 infections.
Economists polled by Reuters had forecast the CPI unchanged.
MARKET REACTION:
STOCKS: U.S. stock index futures fall after the inflation dataBONDS: U.S. Treasury yields slid across the board.FOREX: The dollar fell against the euro and yen.
COMMENTS:
PHIL BLANCATO, CHIEF EXECUTIVE OFFICER, LADENBURG THALMANN ASSET MANAGEMENT, NEW YORK
“This in my opinion exactly what we wanted, not too hot, not too cold, a Goldilocks number that will set us up for a much-improved year this year.
Initial reaction is minimal, when you meet expectations, that tends to be that you are not going to get a significant vibration in the market”
It would not surprise me to see markets fell off a bit today with the expectations of a lower-than-expected number, which obviously did not happen.”
BRIAN MULBERRY, CLIENT PORTFOLIO MANAGER, ZACKS INVESTMENT MANAGEMENT, CHICAGO
“Top line numbers fell right in line with expectations for both CPI and Core CPI, which will confirm the market’s notion that Inflation has peaked and that we will likely not retest the high of 9%+.
That said, the jobless claims came in below expectations by enough of a margin to confirm the Fed’s position that strong labor markets tend to fuel more spending in Services.”
Bottom line, this does not move our belief that we will see rates move higher still and likely remain at or above 5% for almost all of 2023.”
MARIA VASSALOU, CO-CHIEF INVESTMENT OFFICER OF MULTI-ASSET SOLUTIONS, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK
“The market has priced in a very optimistic scenario about CPI in the previous days. The numbers came in at exactly the expectations level. That means that some of the optimism in the markets may get unwound both in equities and fixed income. While a 25-bps hike in the next Fed meeting is still in play, the strength of housing in the core CPI and the benign jobless claims support the scenario of a 50bps hike in the next meeting. However, what matters most for the markets is the terminal Fed rate, not so much the pace of hikes. As we get closer to the terminal rate, the pace of hikes needs to slow down.”
QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA
“This is difficult for the (stock) market. The market had been anticipating a cooler number, especially having those rents that are starting to come down show up a little bit in this report, but they haven’t. The market has been desperate to cross over 4,000 into 4,100; this is going to make that difficult.”
IAN LYNGEN, HEAD OF U.S. RATES STRATEGY, BMO CAPITAL MARKETS, NEW YORK
“I think that the as expected headline and core CPI print have really contributed to the notion that the Fed will be downshifting again, whether it’s at February or at the March meeting remains to be seen, and we’re going to be watching the incoming Fed speak for any guidance throughout the day in that regard.
The fact that we have seen core inflation decelerate to 5.7% year-over-year, from 6% in November, reinforces the peak inflation argument. Similarly on the headline basis we dropped to 6.5% from 7.1%. All of this is consistent with the Fed’s interpretation of the lagged impact of monetary policy and the cumulative effect of the tightening that they’ve already accomplished.
So, the conversation for the market is quickly going to shift to how long will the Fed actually be able to keep terminal in place once its achieved, and I think that that’s what’s playing out in the Treasury market at this moment, and we’re seeing a net decline in rates pretty much across the curve. But I will note that it is an especially volatile period, which is not atypical for inflection points in market expectations and the broader macro outlook.”
BRIAN KLIMKE, INVESTMENT DIRECTOR, CETERA INVESTMENT MANAGEMENT LLC, LOS ANGELES
“It (the report) came in as expected, but investors were somewhat optimistic leading into this reading, so that they were buying the rumor and selling the new. They were kind of anticipating (an) as-expected or better than expected reading. So they were bidding up markets ahead of time and now that the news hit, they’re selling. We’ve seen that before where investors anticipate and then once the news is in, they sell a little bit.”
(Compiled by the Global Finance & Markets Breaking News team)
