Inflation Data Revisions Hold Steady In Q4: No News Is Good News?

Consumer Price Index inflation adjustments for the final quarter of 2023 remained unchanged at 3.3%, the Bureau of Labor Statistics said Friday.

There were minor revisions in the month-over-month rates, which overall show a hint of stability as markets gear up for the forthcoming January CPI announcement next week.

• December CPI Adjustment: The CPI for December was slightly adjusted to a 0.2% increase, down from the preliminary 0.3%.
• November, October Revisions: November saw an upward revision to 0.2% from an initial 0.1%, while October’s figures were corrected to 0.1% after being previously reported as unchanged.
• Q4 CPI Steady: CPI remained unchanged at a 3.3% annualized increase in the fourth quarter of 2023.

Looking Ahead: January CPI, Market Implications

As attention turns to the January CPI report due Feb. 13, analysts are projecting a significant deceleration in the annual headline inflation rate from December’s 3.4% to 3%. This expected decline is attributed to lower energy costs and a high base effect from the previous year.

The annual core inflation rate is anticipated to experience a marginal decrease from 3.9% to 3.8%.

Market Reactions

Market-implied probabilities remained broadly steady following the CPI revisions, suggesting an 80% likelihood of the Federal Reserve maintaining the current fed funds rate in March. Additionally, there’s a 66% probability of a policy easing by May, with forecasts indicating up to six rate cuts totaling 125 basis points by the end of 2024, as per CME Group’s FedWatch tool.

In response to the CPI revisions, Treasury yields remained stable, while U.S. equity futures saw an uptick in premarket trading. On Thursday, the S&P 500, as represented by the SPDR S&P 500 ETF Trust SPY, achieved a historic milestone, touching the 5,000 mark and setting new record highs.

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