Granted the Consumer Price Index isn’t the inflation index that the Federal Reserve prefers but until the next release of that measure–the Personal Consumption Expenditures Price Index scheduled for January 30–the CPI is what we’ve got.
In December the index rose 0.3% in December, the Bureau of Labor Statistics reported this morning. For the last 12 months the index is up 2.1%. What’s called the Core CPI, which excludes prices in the volatile food and energy sectors, was up 0.2% for December. That brought the 12-month increase in the Core index to 2.2%
Both the headline CPI and the Core CPI are now above the Federal Reserve’s inflation target of 2%. The year-over-year increase in the headline CPI now shows the largest 12-month increase since the period that ended in June 2014.
Economists surveyed by Briefing.com had expected a December increase in Core CPI of 0.2%.
The financial markets are still not anticipating any increase in interest rates until the Fed’s June 14 meeting. According to calculations on CME FedWatch, the Fed Funds Futures market gives 82% odds for rates staying the same at the March 15 meeting and 69% odds of no move at the May 3 meeting. For June 14, odds that the Fed will stand pat drop to 34% with odds for an interest rate increase of 25 basis points or more climbing to 66%.