Unexpected Surge in Consumer Prices Raises Economic Concerns
In a report that surpassed economists' expectations, the Consumer Price Index (CPI) rose significantly over the past year, defying predictions and raising concerns over persistent inflation.
Charlie Kennedy
- 2024-01-11
- Updated 11:30 PM ET
(NewsNibs) - According to recent data, the Consumer Price Index, an important measure of inflation, climbed 3.4% year-over-year, exceeding the Dow Jones estimate of 3.2%. The month-to-month rise was reported at 0.3%, which also surpassed forecasts of a more conservative 0.2% increase. Core CPI, which strips out volatile food and energy prices, rose by 3.9% relative to last year, outpacing the projected 3.8%. It's worth noting that, month-to-month, core CPI did match anticipations with a 0.3% gain. This data suggests that, despite efforts to temper inflation, price pressures remain resilient in the economy. Since June of the previous year, the headline inflation has stopped its decline, while core CPI has seen only a minor decrease since September.
Market Reacts Subtly to Economic Data
The futures markets didn't fluctuate after the CPI data release, indicating that traders are pricing in the same probability of federal rate cuts in 2024 as they were before the data emerged. The odds of rate cuts beginning as early as March stayed at about 62%. Despite an initial dip following the release of the CPI data, the market managed to recover and end the day flat. This tempered market response suggests that while the data were not as expected, they might not imply a drastic shift in the overall economic forecast or monetary policy.
A Mixed Picture in the Labor Market
The labor market presents a multifaceted image. December's job report revealed 216,000 added jobs, outstripping expectations by a significant margin, while the unemployment rate held steady at 3.7%, undercutting the anticipated rise to 3.8%. Moreover, labor force participation experienced its largest regression in almost three years. Reviewing payroll reports show a pattern of downward revisions, with figures being adjusted lower in 10 out of the last 11 months. The Bureau of Labor Statistics Household Survey marked a stark decline of 683,000 in the number of employed workers, which is the largest drop since the beginning of the COVID-19 pandemic. Tellingly, full-time positions fell by 1.531 million in December, offset by part-time work increases. No net full-time job additions have been made since February 2023, notwithstanding a rise in individuals holding multiple jobs by 222,000, setting a new record. Government employment has averaged an increase of 56,000 positions monthly throughout 2023.
The broader economic environment is further contextualized by recent substantial layoffs and job reduction announcements, including significant cuts by companies such as Unity Software, Duolingo, Blackrock, Amazon, Twitch, and Google. Meanwhile, the ISM Service Report indicated a sharp deceleration in service activity in December, continuing a trend previously seen in manufacturing, which has been in contraction for 14 consecutive months.
Looking to the Future Amid Regulatory Changes and Market Optimism
Looking ahead, analysts forecast an 11.8% earnings growth in the coming year, according to FactSet, which puts the figures above the average yearly S&P earnings growth rate of 9.03% reported by YCharts. On another positive note, the economic landscape could experience a shift as the SEC has approved changes allowing for spot bitcoin ETFs. This critical step towards mainstream acceptance of bitcoin was followed by the green light for the launch of 11 such exchange-traded funds. Bitcoin's value responded favorably, rising nearly 2% to above $47,500 following the ETF approval announcement. This development signals an increased willingness amongst regulators to embrace digital assets and could indicate significant changes in the financial sphere moving forward.
