Inflation: still quite annoying

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Good day. no coverage optimism The situation regarding the US financial sector seems good, at least for a day. Yesterday, shares of JPMorgan, Goldman Sachs, Citigroup and Wells Fargo, four of the five largest banks in the United States, rose 2 percent, 6 percent, 6.5 percent and 6.7 percent , respectively, after they all reported their fourth-quarter results. Headlines focused on strong stock trading results and bond issue. But the reading on the core economy was also positive: solid spending, stable credit quality and growing business. optimism. If inflation does not reappear (see below) and geopolitics do not worsen, 2025 could be a good year. Send us an email: robert.armstrong@ft.com and Aiden.reiter@ft.com.

Inflation

The lot of today-concerned-CPI inflation, contrary to market fears, was not too good. Headline inflation rose from 2.8 percent to 2.9 percent in December, just as economists expected. Core CPI, which excludes volatile food and energy, has been more or less sideways for five months. It fell just a little, from 3.3 percent to 3.2 percent:

Unhedged’s preferred measure, the month-over-month change in annualized core inflation, paints a more optimistic picture. The one-month reading fell sharply, from 3.8 percent to 2.7 percent:

After a stretch of uncomfortably warm inflation readings and last week’s strong jobs report, the market (particularly the bond market – I was desperate for relief. The headlines and key figures, as well as the details of the report, give some clues.

Much of the overall increase was due to a big jump in energy prices. Housing, often the most difficult part of the index, has continued to decline since September, when it first broke its upward trend. One month’s reading fell sharply last month:

There were other notable areas of softness. Clothing and restaurants remained stable, while prices for appliances and furniture plummeted. On the other hand, the price increases were quite large. Among the increases were insurance, recreational services and delivery services.

The market has taken the report as a sign that inflation will resume its decline. The market slightly increased its bet on rate cuts by 2025:

Two- and 10-year Treasury yields also fell, and breakeven inflation (the difference in yield between nominal and inflation-protected Treasuries) fell:

Many research notes painted an optimistic picture, emphasizing that “disinflation is still progressing,” as Samuel Tombs of Pantheon Macroeconomics put it, or that the CPI was “tame,” as the Rosenberg Research team put it.

Unhedged feels just a little bit of peace of mind. We thought that inflation was almost defeated four months ago, and we were wrong; once burned, and all that. Despite this good report, whichever way you look at it, core inflation is closer to 3 percent than 2 percent, and the trend is sideways, not downward.

December showed a significant drop in Unhedged’s preferred measure, that is, after three hectic and hot reports. This is visible in the semi-annual average: there was clearly a bullish turning point in September and things have been heating up since then. Remember, a month is just a month (OMIJOM!).

Another way to eliminate some noise is Cleveland Fed the average CPI, which analyzes the average price change in the basket, and the 16 percent trimmed average CPI, which excludes the largest negative and positive price changes. Together they give an idea of ​​the general trend by eliminating the most important factors, whether it be energy, food or something else. The trimmed average remains stable, above 3 percent. The median is close to 4 percent and is falling only gently.

We’re hovering around, and closer to, 3 percent than 2 percent. Not bad, but it falls short of the Fed’s goal and, in a hot economy, may not reach a stable equilibrium. This will keep the Fed on pause for now, and we’re still betting on a rate cut this year. Both the Federal Reserve and the incoming president should proceed cautiously.

(Reiter)

a good read

“Great Britain problem “It’s just that almost everyone considers growth their priority, and almost no one means it seriously.”