The Consumer Price Index (CPI) report released on Wednesday showed progress on inflation, causing US stocks to surge. The closely watched core CPI, which excludes volatile categories like food and energy, slowed for the first time in months. Economists had expected the CPI to increase to 2.8% annually.
While the overall CPI did jump to 2.9%, this was largely driven by gas and food prices. Energy costs accounted for 40% of the monthly increase, and food prices remained elevated due to pressures from weather and disease. However, the core CPI rose just 0.2% from November and eased to 3.2% after staying at 3.3% since September 2024.
This slowdown in core inflation boosted traders’ hopes that the Federal Reserve will continue cutting rates this year.
CPI slowdown boosts stock market
The Dow was up by almost 700 points in morning trading, while the S&P rose by 1.69% and the Nasdaq Composite was higher by 2%.
Economists noted that the Fed is okay with temporary increases in headline CPI if they don’t spill over into core CPI. This CPI report was the final one for 2024 before President-elect Donald Trump takes office. Inflation has been a critical factor, with prices of everyday items 21% higher than in 2021.
Wages have risen faster than inflation for 20 months but remain below where they were four years ago. The path back to normal inflation rates is expected to be bumpy. The CPI started 2024 at 3.1%, fluctuated throughout the year, and the past three months have shown that the return to typical rates isn’t smooth.
Despite the overall positive news, the report was particularly painful for American consumers, with higher prices for necessities like food, energy, shelter, and vehicle insurance hurting household budgets, especially for lower-income Americans.