U.S. inflation declined in December, and slowed for a sixth consecutive month, data from the Bureau of Labor Statistics indicated Thursday, further cementing the case for an easing in Fed rate policy over the coming months.
The headline consumer price index for the month of December was estimated to have risen 6.5% from last year, down from the 7.1% pace recorded in November and largely in-line with the Street consensus forecast.
On a monthly basis, inflation was down 0.1%, the BLS said, compared to a 0.2% reading in November and the June peak of 1.3%. Street forecasts had projected a 0.1% acceleration.
So-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.3% on the month, and 5.7% on the year, the report noted, with both the annual and monthly reading matching Street forecasts.
"The question of whether inflation is on pace to drop all the way down to 2%, or whether it will stabilize at a higher level –- say 4% -- is the main issue for the Fed, and their path of tightening will be determined on whether it’s the former or the latter," said Chris Zaccarelli, Chief Investment Officer, Independent Advisor Alliance in Charlotte, North Carolina.
"The real implications for the economy and the stock market will pivot on whether the Fed has done enough tightening to bring inflation under control or whether they will do too much tightening and drive the economy into a recession."
On Wall Street, U.S. stocks reacted to the expected readings by paring earlier gains, with the S&P 500 rising 9 points in the opening hour of trading while the Dow Jones Industrial Average up 140 points.
Benchmark 10-year Treasury note yields were up 2 basis points to 3.526% in volatile trading while 2-year notes were pegged at 4.166%. The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.26% lower at 102.917, near the lowest since early July.
The CME Group's FedWatch is now pricing in a 91.2% chance of a 25 basis point Fed rate hike on February 1, up from 62.6% last week and 35.1% in early December.
