December 2023 Inflation Update: Consumer Price Index (CPI) Jumped to 3.4%

The Consumer Price Index unexpectantly tick up to 3.4% in December 2023. Published by the Bureau of Labor Statistics and the Bureau of Economic Analysis. The Federal Reserve also uses this data to determine interest rate changes and policy. 

Consumer Price Index (CPI) & Core Inflation Rate

The CPI data is a widely followed measure of inflation that tracks the average change in prices paid by urban consumers for a basket of household consumer goods and services. As of December 2023, the CPI went to to 3.4%, down from 3.7% in September 2023. The Core CPI, which does not include food & energy costs, also rosed by 0.3%, currently at 3.9% over the last 12 months. 

Producer Price Index (PPI) – Inflation Measure for Manufactures

This vital measurement tracks the average price change domestic producers receive for their goods and services. It is a leading indicator of consumer inflation, reflecting price pressures that may eventually pass on to consumers. In December, the PPI is fell 0.1%, after falling 0.1% November and 0.4% in October, the biggest monthly decline since April 2020. While it is an indication of future prices increases for the consumer, it is to be seen if the manufactures and producers will pass the savings down to the consumer level.

Personal Consumption Expenditures (Core PCE)

The PCE price index, also known as consumer spending, is measured by the Bureau of Economic Analysis.  It is another closely watched inflation gauge, excluding volatile food and energy prices. It is considered a preferred measure of inflation by the Federal Reserve as it provides a cleaner signal of underlying inflation trends. As of November, the CPE is at 3.2%, which is close to expectations.

Oil & Gasoline Prices

Gas prices dropped 3.72%. The United States average price of regular fell 12.5 cents nationwide from Nov 27 price of $3.363 to December 25 price of $3.238.  Brent oil is down to $77.69 in December.  Compared to $81.72 in November and $89.08 in October. 

What does this mean for Price Inflation?

The combined numbers may provide complementary insights into what future inflation expectations may be. While the CPI reflects the headline inflation experience of consumers, the CPE excludes volatile components and offers a clearer picture of underlying inflation trends. Conversely, the PPI provides an early indication of price pressures that may eventually translate into higher consumer prices. 

The recent data may cause the Federal Reserve to review the decision to cut interest rates.  While rate cuts in 2024 is likely, it may be not as early as March as some analysts expects. Moreover, while the inflation have slowed, it still take time for consumer to get used to “the new normal”. Prices are not likely to fall back to the level in 2021 unless we see a major economic downturn that would cause deflation.