On January 27, 2024, people shopped in a supermarket in Manhattan, New York City.
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Prices paid by consumers in the market are rising more slowly than initially reported, according to closely watched revised data released by the government on Friday.
The U.S. Department of Labor’s Bureau of Labor Statistics said an update to the consumer price index showed a basket of goods and services rose 0.2% for the month, down from an initially reported 0.3% increase.
While the change is modest, it helps confirm that inflation is slowing as 2023 ends, giving the Fed more leeway to begin cutting interest rates later this year.
For the Bureau of Labor Statistics, these revisions are a no-brainer, but this year has drawn additional attention after the market reacted strongly to last year’s changes. Signs that inflation will rise more than expected in 2022 have pushed up U.S. Treasury yields and raised concerns among investors that the Federal Reserve may continue to tighten monetary policy.
Federal Reserve Board Governor Christopher Waller specifically called attention to the 2022 revision, drawing market attention to the latest round.
Excluding food and energy, so-called core CPI rose 0.3% for the month, the same as initially reported. Fed policymakers tend to focus more on core measures because they better reflect the long-term path of inflation.
In addition, the overall data for November was revised upward, rising 0.2% from the initial forecast of 0.1%.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said that overall, the revision showed that the overall CPI annualized growth rate in the fourth quarter was 2.7%, which was 0.1 percentage points lower than the originally announced figure. In addition, according to Goldman Sachs calculations, the second-half revision increased the CPI by 0.003 percentage points.
Paul Ashworth, chief North America economist at Capital Economics, said the revisions amounted to “a wet squib,” although they could have some impact on the Fed.
“With some Fed officials clearly concerned about a repeat of last year – when revisions pushed up monthly changes in core prices in the final months of last year – the lack of any meaningful changes this year, at least at the margin, supports an earlier move in May. It’s time to cut interest rates,” Ashworth added.
The Federal Reserve prioritizes the personal consumption expenditures price index as its primary inflation indicator. CPI readings are incorporated into the Commerce Department’s PCE calculations. The essential difference between the two metrics is that the CPI reflects the cost of goods, while the PCE adjusts for what consumers actually buy, taking into account changes in behavior when prices rise and fall.
There was little change in futures market pricing after the data was released.
Traders still widely expect the Fed to keep its benchmark overnight borrowing rate steady at its next meeting in March, then cut rates in May and then another 4 percentage points before the end of the year, according to forecasts from CME Group.
— Reuters contributed to this report.
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