US Inflation Was Cool As A Cucumber

US Inflation Was Cool As A Cucumber

about 1 year ago1 min

US prices chilled out in December, according to inflation data released on Thursday.

What does this mean?

Economic forecasters aren’t always on the money, but this time their crystal balls were as clear as, well, crystal. After all, an inflation rate of 6.5% in December – or 5.7% excluding food and energy – was right in line with predictions, which meant markets didn’t really stir when the news dropped. And that shoulder shrug was understandable: stocks have had a strong start to 2023 already, so investors were more or less betting that inflation would be, relatively speaking, pretty tepid.

US inflation

Why should I care?

For markets: Data’s a lag.

December was the sixth straight month that inflation slowed, and the market’s not expecting that winning streak to end anytime soon. It might be right: the prices of both housing and clothing rose in December, sure – but take a look at the here and now, and you’ll notice housing costs dropping, and a glut of unwanted clothing piled on retailers’ shelves. So with signs that the prices of those inflation-fueling items could be switching directions, January’s data might also make for refreshing news.

Unbalanced cooldown
Source: Barron’s

The bigger picture: La la la, I’m not listening.

It doesn’t seem to matter that the stock market thinks inflation’s on a downward march: the Federal Reserve (the Fed) has already mapped out its hiking path, and seems unwilling to re-route come hell or high water. That puts the central bank at logger-heads with investors – and somebody’s going to have to blink first. The stock market thinks it’ll be the Fed, which has plenty of pivoting experience. But it could be wrong, and the Fed’s tenacity might spell the end of perky stock prices.

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