The Government Says Inflation Was Lower in December Than Initially Reported

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Written By Jackson Hartwell

Revised Consumer Price Index Figures

The Bureau of Labor Statistics (BLS) has released updated figures for the consumer price index (CPI), indicating a more modest monthly increase of 0.2% compared to the initially reported 0.3%.

This adjustment underscores a deceleration in inflation as the year concluded, potentially offering the Federal Reserve more flexibility to reduce interest rates in the coming months.

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Market Response to Revisions

This year’s CPI revisions have drawn heightened scrutiny following market volatility triggered by last year’s adjustments, which revealed a higher-than-expected inflation rate for 2022.

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Such revelations had previously led to a surge in Treasury yields and investor concerns regarding the Fed’s monetary policy stance. Fed Governor Christopher Waller’s emphasis on these revisions has particularly spotlighted the latest updates.

Core Inflation and Long-term Trends

The core CPI, which excludes volatile food and energy prices, remained unchanged at a 0.3% increase for the month, aligning with initial reports. This metric is closely monitored by Federal Reserve officials for insights into enduring inflationary trends.

Implications of Revised Data

The revised data suggests a 2.7% annualized increase in headline CPI for the fourth quarter, a slight adjustment from earlier estimates.

Despite minimal overall changes in the second-half revisions, the lack of significant alterations from last year’s pattern could influence Federal Reserve decisions, potentially favoring an earlier interest rate cut.

Fed’s Preferred Inflation Measure

While CPI provides valuable insights into price changes, the Federal Reserve primarily uses the personal consumption expenditures (PCE) price index to gauge inflation.

The PCE index accounts for consumer behavior adjustments in response to price fluctuations, offering a comprehensive view of inflationary pressures.

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Market Expectations and Federal Reserve Outlook

Following the release of the revised CPI data, futures market predictions remained stable, with a consensus still anticipating the Federal Reserve to maintain its benchmark overnight borrowing rate in its upcoming March meeting.

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Subsequent rate cuts are expected to commence in May, with additional reductions projected throughout the year.

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