Morning Market Brief: January 12, 2024

US posts higher-than-expected inflation?

The US inflation rate accelerated in December to its highest since September 2023. Despite the higher rate, inflation softened considerably over 2023, potentially setting the stage for some rate cuts by the US Federal Reserve Board (Fed) this year. However, December’s result shows the Fed’s battle against inflation isn’t over.?

1. The annual US inflation rate was 3.4% in December, up from the 3.1% rate in November. A Bloomberg survey of economists estimated a rate of 3.2% in December. In January 2023, the US economy had an inflation rate of 6.4%.
2. Energy prices continued to drop year-over-year in December but at a slower pace than in November. Also contributing to the higher rate was upward price pressure on automobiles, vehicle insurance and hospital services.
3. Conversely, the US core inflation rate softened in December. Core inflation, which excludes more volatile items such as energy and food, slowed to 3.9% in December from 4.0% in the previous month. Core inflation is still too high, but its downward progression over the past year has helped put rate cuts on the table for the Fed.
4. With December’s inflation report in the rearview, market attention turns to the Fed, which makes its next interest-rate announcement on January 31. At its last meeting, the Fed noted it expects rate cuts by the end of 2024. Inflationary pressures are easing, but December’s numbers show the path to the Fed’s 2% target might not be smooth.

Higher-than-expected inflation in December moderated investor expectations of the size and timing of the Fed’s rate cuts. Still, rate cuts from the Fed seem likely, as they do from the Bank of Canada. In the meantime, financial markets are likely to swing between gains and losses as market participants parse through economic indicators to predict when and how deep central bank interest-rate cuts might be this year.

At?CIBC Private Wealth, we aim to take a comprehensive approach to managing, building and protecting your wealth. If you'd like to discuss this market and economic update in more detail, please get in touch with your advisor any time.