Mixed US consumer price revisions leave slowing inflation trend intact

FILE PHOTO: A woman shops for groceries at El Progreso Market in the Mount Pleasant neighborhood of Washington, D.C., U.S., August 19, 2022. REUTERS/Sarah Silbiger/File Photo

WASHINGTON — U.S. monthly consumer prices rose less than initially thought in December, but the overall inflation revisions were mixed, and did not shift expectations on the timing of an anticipated interest rate cut from the Federal Reserve this year.

The annual revisions published by the Labor Department on Friday also showed the consumer price index increasing slightly more than previously reported in October and November.

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Prices excluding the volatile food and energy components were unrevised, after rounding, from October through December. All told, the revisions did not materially alter the path of inflation, which is moderating after surging in 2022.

The revised CPI data had been eagerly awaited by financial markets and economists after Federal Reserve Governor Christopher Waller last month flagged them as among the key data pieces he would be watching as policymakers try to gauge progress in their fight against inflation.

“The revisions were much ado about nothing,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin. “This is becoming a trend where a Fed official mentions a data release once and then everyone waits with bated breath only to find out that it’s a bunch of noise.”

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The consumer price index rose 0.2% in December instead of 0.3% as reported last month, the revisions of the CPI data published by the Labor Department’s Bureau of Labor Statistics (BLS) showed. But data for November was revised up to show the CPI increasing 0.2% rather than 0.1% as previously estimated.

The CPI gained 0.1% in October. Prices were previously reported to have been unchanged in October. The 3-month annualized increase in the CPI was revised up to a 1.9% rate from a 1.8% pace.

The revisions emanated from the recalculation of seasonal adjustment factors, the model used by the government to strip out seasonal fluctuations from the data. This routine procedure, which the BLS undertakes every year, covered data from January 2019 through December 2023. The year-on-year data, which is not seasonally adjusted, was unrevised.

Excluding food and energy, the CPI advanced by 0.275% in December, which was rounded up to 0.3%. That was revised down from 0.309%, rounded to 0.3%. The so-called core CPI was revised up to 0.308% in November, rounded to 0.3%.

It was previously reported to have increased 0.285% in November, rounded up to 0.3%. The 3-month increase in the core CPI inflation rate was unchanged at 3.3%.

Core goods prices fell in the first half, but not as steeply as had been previously estimated, while the increase in the cost of services was revised down for November and December. The increase in services excluding rents was revised lower in November and December.

“This should give more support to the Fed that strong growth and jobs are not causing an acceleration in inflationary pressures,” said Ellen Zentner, chief economist at Morgan Stanley in New York.

Stocks on Wall Street were trading higher. The dollar was steady versus a basket of currencies. U.S. Treasury prices fell.

Updated weights

Financial markets expect the U.S. central bank will start cutting interest rates sometime in the first half of the year. Since March 2022, the Fed has raised its policy rate by 525 basis points to the current 5.25% to 5.50% range.

The 2023 data was of interest after revisions last year showed inflation a bit warmer in the second half of 2022 than previously thought. Economists saw a minor impact from the CPI revisions on the personal consumption expenditures (PCE) price indexes data for the fourth quarter, the inflation measures tracked by the U.S. central bank for its 2% inflation target.

“On the whole for October-December … we look for basically no revision to the monthly changes to the core PCE data on net, with the December change revised down by 0.02 percentage point but offsetting upward revisions to the earlier months,” said Daniel Silver, an economist at JPMorgan.

The core PCE price index gained 0.2% on the month in December and rose 2.9% year-on-year.

The BLS also updated spending weights used to calculate the CPI, effective with January’s report due next Tuesday. Housing now has a higher weighting, centered on rents. Transportation’s share was lowered, with downgrades to new and used motor vehicles. Changes to the methodology in the calculating of used cars and trucks prices will also be introduced.

Used cars and trucks have been the primary drivers of goods deflation. Rents, which have accounted for much of the elevation in inflation, are expected to subside substantially this year. That suggests the anticipated diminished drag on core inflation from motor vehicles could be offset by rents.

According to a Reuters survey of economists, the CPI likely increased 0.2% in January. That would lower the annual increase in prices to 3.0% from 3.4% in December. The core CPI was forecast advancing 0.3%, with the year-on-year increase slowing to 3.8% from 3.9% in December.

Economists expect inflation to cool considerably this year.

“These weight shifts are likely to tilt risks to the upside for core price pressures in the near term, just mechanically, but on balance, we don’t foresee this as having a material effect on our baseline forecast,” said Pooja Sriram, an economist at Barclays in New York.