On January 27, 2024, people shop in a supermarket in the New York borough of Manhattan.
Charly Triballeau | AFP | Getty Images
Prices paid by consumers in the market rose even more slowly than initially reported, according to closely watched revisions released by the government on Friday.
Updates to the consumer price index showed the broad basket of measured goods and services increased 0.2% month-over-month, less than the 0.3% originally reported, the Labor Department’s Bureau of Labor Statistics said.
While the change is small, it has helped confirm that inflation will ease towards the end of 2023, giving the Federal Reserve more leeway to start cutting interest rates this year.
The revisions are a given for the BLS, but they attracted particular attention this year after the market reacted sharply to last year’s changes. Signs that inflation would rise more than expected in 2022 pushed up Treasury yields and sparked investor fears that the Fed could keep monetary policy tighter.
In particular, Fed Governor Christopher Waller had drawn attention to the revisions for 2022, thereby arousing market attention for the latest round.
Excluding food and energy, the so-called core CPI rose 0.3% for the month, the same as originally reported. Fed policymakers tend to focus more on core measures because they provide a better indication of long-term inflation movements.
Additionally, the headline reading for November was revised upward by 0.2%, compared to the original estimate of 0.1%.
According to Ian Shepherdson, chief economist at Pantheon Macroeconomics, the revisions overall suggest that the consumer price index accelerated by 2.7% on an annual basis in the fourth quarter, a decline of 0.1 percentage points from the original figures. Subsequently, the revisions for the second half of the year led to an increase in the CPI – by 0.003 percentage points, according to Goldman Sachs calculations.
The revisions amount to a “failure,” said Paul Ashworth, chief North America economist at Capital Economics, although they could have some influence on the Fed.
“With some Fed officials apparently worried about a repeat of last year – when the revision drove up monthly changes in core prices in the final months of last year – the lack of a meaningful change this year is, at least on the margins , supports an earlier rate cut in May,” Ashworth added.
The Fed prioritizes the personal consumption expenditures price index as its main measure of inflation. The CPI values are included in the Department of Commerce’s PCE calculation. The difference between the two metrics is essentially that the CPI reflects the cost of items, while the PCE takes into account consumers’ actual purchases and takes into account behavioral changes as prices rise and fall.
Prices on the futures market hardly changed after the data was published.
According to CME Group forecasts, traders still largely expect the Fed to hold its federal funds rate steady at its next meeting in March, then cut it in May, followed by four more quarter-point cuts by year’s end.
– Reuters contributed to this report.
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