"US December Inflation: Results in Line with Expectations"

US December Inflation Report

In December, US inflation was announced at a monthly rate of 0.3% and an annual rate of 2.7%. These figures presented a table that aligned with both market expectations and the previous month's levels, indicating no significant change in inflation dynamics.

Data Analysis

Following the government shutdown in November, December figures served as an indicator of the expected normalization test in the markets. According to the publicly disclosed data, methodological effects from previous months did not create a strong upward revision.

Energy and Service Prices

The monthly increase remaining at 0.3% indicates limited price pressures in energy and service categories. The controlled trend of the increase in housing costs and the weak appearance of goods inflation were the main factors that prevented headline inflation from surprising above expectations.

How Will We Achieve Annual Inflation?

While annual inflation remained stable at 2.7%, this situation indicates that inflation continues to exceed the Federal Reserve's 2% target, but it is not entering a re-accelerating phase. This aligns with the view that the Fed's disinflation process is progressing slowly but steadily.

Market Effects

The failure of annual inflation expectations in the swap market to approach 3% has largely reduced fears that “data distortions could create a sharp upward correction.” From this perspective, the alignment of the data with market expectations has created a reassuring situation for investors.

In light of these data, expectations are strengthening that the Fed will decide to keep interest rates steady at its January meeting. Since no new inflation pressure signals have emerged, there seems to be no rush for a rate cut.

In the bond market, the “neither hot nor cold” nature of the data comes to the forefront. A sharp rise in 10-year US Treasury yields is not expected, and it is observed that yields are inclined to remain within the existing range.

In terms of stock markets, the alignment of inflation with expectations did not negatively affect risk appetite. After the recent volatility following employment data, it allowed for a more balanced pricing environment for the markets. US index futures recorded gains after the data was released.