• Consumer prices rose 0.2% on the month in December, one tick lower than market expectations and a deceleration from the 0.3% posted in November. On a year-on-year (y/y) basis, inflation rose 2.3% in 2019. This was larger than the 1.9% recorded for 2018.
  • Energy prices and medical care commodities were the primary contributors to the inflation outturn for the month. Energy prices rose 1.4% month-on-month (m/m), its third consecutive monthly increase and up from November’s 0.8%. This reflected a notable uptick in the gasoline index, which rose 2.8% m/m. For the year, energy prices were up 3.4%. Medical care commodities rose notably by 1.5% m/m, with a yearly increase of  2.5%.
  • Food inflation continues to be subdued. The food index increased 0.2% in December after rising 0.1% in November, and for the year  was up 1.8%.
  • Core prices rose 0.1% (m/m), a tick lower than November’s outturn and market expectations. The core inflation rate versus a year ago remained steady at 2.3% in December.
  • Core services inflation decelerated to 0.2% m/m (from 0.3% previously). The price for medical care services rose 0.4% in December, unchanged from November, and is up 5.1% from a year ago. The shelter index rose 0.2% on the month (lower than the 0.3% in November) while the transportation index declined by 0.3%. Overall core services inflation was up 3.0% versus a year ago, unchanged from November.
  • As was the case in November, core goods prices were flat in December. New vehicle prices rose by 0.1% after five consecutive months of declines, while used vehicle prices were down 0.8% for the month. Apparel prices were up 0.4% m/m, but for the year fell by 1.2%. Overall, core goods prices only rose marginally relative to year ago levels (+0.1%).

Key Implications

  • All seems fairly quiet on the inflation front. With core services inflation edging down, and core goods prices remaining flat, there isn’t much pressure to core prices. Given recent news of a phase-one trade deal with China, which would result in a lowering of tariff rates, the impetus for price increases may be further abated. All this points to moderating inflation heading into 2020.
  • The relatively muted inflation reading suggests that the Fed can continue to hold the line on interest rates. At their most recent meeting, the monetary policy makers held rates constant and signaled that they will continue to do so until the economic outlook and data warrant other actions. All told, there was not much in today’s report to budge the needle in either direction.


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