December CPI +0.4%

The government released the inflation report for December this morning. The headline rate of inflation was 0.4% last month. That was in line with forecasts, though much of the increase was due to gasoline. For December, gasoline prices rose by 8.4% and that accounted for 60% of the rise in December’s CPI.

Last month’s CPI readings were in line with economists’ expectations. The CPI rose 1.4% in 2020. That was the smallest yearly gain since 2015 and was a deceleration from 2.3% in 2019.

The CPI increased at a 1.7% average annual rate over the last 10 years.

The core rate of inflation, which excludes food and energy, rose by just 0.1% last month.

Economists are divided on the outlook for inflation this year. Some believe inflation will breach its target, citing nearly $900 billion additional pandemic relief approved by the government in late December and expectations for more fiscal stimulus from incoming President Joe Biden’s administration and the Democratic-controlled Congress.

Biden will be sworn in next Wednesday. Indeed, U.S. Treasury yields have risen in anticipation of stronger economic growth in the second half of the year. A survey this month showed a measure of prices paid by manufacturers jumped in December to its highest level since May 2018, likely reflecting bottlenecks in the supply chain caused by the virus.

The bond market seems to be more concerned about inflation. This summer, the yield on the 10-year Treasury was just 0.5%. This morning, it got to 1.18%. That’s hardly a big increase but it’s interesting to note.

Posted by on January 13th, 2021 at 11:31 am


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