On Thursday, December 18th, the delayed release of the Consumer Price Index (CPI) for November, due to the U.S. government shutdown, showed a lower-than-expected increase. This has sparked optimism among investors, who believe that inflation pressures may have eased enough to expect the Federal Reserve to continue its loose monetary policy.
The report, which was delayed by the U.S. Bureau of Labor Statistics (BLS), revealed an annualized increase of 2.7% in the Consumer Price Index for November, lower than the economists’ expected 3.1% from a Dow Jones survey.
Furthermore, the core CPI, which excludes the volatile food and energy prices, also came in below expectations, rising by 2.6% over the past 12 months, compared to the expected increase of 3%.
This is the first data report covering the period of the U.S. government shutdown. The government shutdown disrupted the data collection process for the CPI and resulted in the cancellation of the release of the October CPI data.
Due to the cancellation of the October CPI data, the report released on Thursday did not include all the data points typically found in a CPI report. The BLS stated that they were unable to collect data for October and therefore used some “non-survey data sources” to calculate the index.
Since the report lacks comparative data from October, some economists are cautious and have not interpreted this report as a sign of declining inflation.
However, investors have responded positively. After the CPI data was released, stock index futures surged. As of 8:39 AM Eastern Time, S&P 500 index futures rose by approximately 0.5%. The Nasdaq Composite Index led the gains with an increase of over 1%. The U.S. dollar declined, and U.S. Treasury bond yields slipped, with the 10-year Treasury yield currently around 4.11%.
Investors are carefully studying this report to find clues about the Federal Reserve’s future monetary policy directions. Earlier this month, the Federal Reserve lowered the benchmark interest rate by 25 basis points for the third time in a row.
While the possibility of a rate cut in January is low, traders are starting to increase the likelihood of a rate cut in March. The FedWatch tool from the CME Group shows a 60% probability of a rate cut in March, higher than the approximately 53.9% from Wednesday.