December CPI preview: Concerns about sticky inflation to linger

Summary

The December CPI report should indicate that the underlying trend in inflation is not re-accelerating, but it is unlikely to allay the FOMC's increased concerns that inflation has become stuck uncomfortably above its target. We look for the headline CPI to rise 0.4% on the back of a strong gain in energy prices, which would push the year-over-year rate up to a five-month high of 2.9%. Excluding food and energy, price growth looks to have been more moderate in December. After advancing 0.3% for four consecutive months, we look for the core index to increase 0.2%. If realized, that would leave the year-over-year rate at 3.3% for a fourth straight month. While we do not believe progress in the fight against inflation is going into reverse, we do see it stalling this year as earlier tailwinds to disinflation from supply chain improvements and lower commodity prices have faded and as fresh headwinds from trade policy are likely to emerge.

Download The Full Special Commentary