Recent Adjustments to US Consumer Price Data Maintain Outlook for Inflation Slowdown

Recent annual revisions to the United States consumer price index (CPI) have presented a mixed but largely unchanged view of the inflation landscape, leaving intact expectations for a cooling inflation trend. The adjustments, announced by the Labor Department, included minor changes for the months of October, November, and December, which did not significantly alter the overall trajectory of moderating inflation rates following the surge experienced in 2022.

In December, consumer prices saw a smaller increase than initially reported, with the CPI rising by 0.2% instead of the previously stated 0.3%. However, data for November was adjusted upwards, indicating a 0.2% increase rather than the initial 0.1% estimate. These revisions, stemming from updated seasonal adjustment factors, are part of a routine recalibration covering data from January 2019 through December 2023. Despite these adjustments, the year-on-year data, which is not subject to seasonal adjustments, remained unchanged.

The core CPI, which excludes volatile food and energy prices, underwent minor revisions but maintained a 3-month increase rate at 3.3%. Notably, core goods prices in the first half did not decrease as sharply as previously thought, while the rise in service costs for November and December was revised downwards. This nuanced recalibration supports the Federal Reserve’s view that robust economic growth and job gains are not exacerbating inflationary pressures.

The Federal Reserve and financial markets had been keenly awaiting these revisions, especially after Fed Governor Christopher Waller highlighted their importance in assessing the effectiveness of policy measures against inflation. The revisions underscore the ongoing moderation of inflation, aligning with the Fed’s efforts to steer inflation back towards its 2% target.

Looking ahead, the Bureau of Labor Statistics (BLS) has updated the CPI’s spending weights and introduced methodological changes, particularly in calculating used car and truck prices, effective from January’s report. These updates, reflecting shifts in consumer spending patterns, may influence future inflation readings, especially in the core CPI components related to housing and transportation.

Market expectations suggest that the Federal Reserve may begin reducing interest rates in the first half of the year, following a series of aggressive rate hikes aimed at curbing inflation. The anticipation of a cooling inflation trend, supported by the latest data revisions and adjustments in CPI calculation methodologies, offers a cautiously optimistic outlook for the US economy as it navigates through the challenges of inflation management and interest rate policies.

Overall, the mixed revisions to consumer prices underscore the complexity of the inflationary environment but reaffirm the prevailing trend towards a gradual easing of inflationary pressures. This backdrop supports continued vigilance and adaptability in monetary policy as the Federal Reserve and economic stakeholders work to ensure a stable and healthy economic recovery.