December CPI Confirms Continued Inflation Slowdown

Yields and swap rates plummet on CPI day. Bonds rallied significantly today despite a CPI level that came in as forecasted. Yields decreased as much as ~12 bps at the 5y part of the curve. The 10-year yield has now decreased 43bps YTD, continuing to reflect the market’s belief that the Fed will significantly reduce its pace of rate hikes. Equities were once again a beneficiary of the move in bonds, the S&P 500 rising .34% today to climb to +3.74% YTD.

CPI data in-line with estimates, confirms cooling inflation. Headline CPI declined by 0.1% month-over-month in December, in-line with estimates and lower than last month’s 0.1% print. Excluding food and energy, CPI was up 0.3% in December on the month, also identical to estimates, and slightly higher than the 0.2% increase in November. The increase in the core index was driven by higher shelter, household furnishings, auto insurance, recreation and clothing costs, partially offset by lower used car and airline fare prices. Year-over-year, headline CPI was up 6.5% vs. 7.1% in November, and the core index was up 5.7% vs. 6.0% in November. Of note was a 4.5% decline in energy costs in December, led by a 9.4% monthly decline in gasoline prices. 

Day ahead. FOMC voter Patrick Harker (neutral) is set to make public comments at 7:30 AM ET. Separately, Michigan consumer sentiment for January will be released at 10 AM, which highlights an otherwise quiet data calendar.