Daily Spotlight

Inflation Back on Downward Track

Two important inflation reports -- the Consumer Price Index (CPI) and the Producer Price Index (PPI) -- were released earlier this week, and both signaled that pricing pressures have moderated. The two reports both showed that overall inflation remains well below the peak rates in the summer 2022, but also confirmed that the rate of price increases is still above the Federal Reserve's target of 2.0%. Indeed, it may take a while to get to that level. Let's first take a deeper dive into the Consumer Price Index. The news here was good, as the annualized headline number of 2.7% held steady compared with the previous month, as did the core rate at 2.6%. The steady overall pricing environment included a 3.4% decline in gasoline prices, as well as under-control food costs (+2.4% at home) and new vehicles (+0.3%). The problematic sticky categories of shelter and transportation also have been better behaved of late. Turning to the Producer Price Index, we note that the PPI measures pricing trends farther up the supply chain, at the manufacturing level. Here, the news also signaled price stability. The PPI final demand annual rate through November was 3.0%, compared to 2.8% in October and 3.7% in January 2025. Based on the fundamentals, we expect pricing pressures to continue easing modestly as the housing market cools (due to high mortgage rates) and the price of oil stays below $90 per barrel (current price around $62). This backdrop gives the Federal Reserve some room to focus on the employment situation, which also has cooled....  Price Index. The news here was good, as the annualized headline number of 2.7% held steady compared with the previous month, as did the core rate at 2.6%. The steady overall pricing environment included a 3.4% decline in gasoline prices, as well as under-control food costs (+2.4% at home) and new vehicles (+0.3%). The problematic sticky categories of shelter and transportation also have been better behaved of late. Turning to the Producer Price Index, we note that the PPI measures pricing trends farther up the supply chain, at the manufacturing level. Here, the news also signaled price stability. The PPI final demand annual rate through November was 3.0%, compared to 2.8% in October and 3.7% in January 2025. Based on the fundamentals, we expect pricing pressures to continue easing modestly as the housing market cools (due to high mortgage rates) and the price of oil stays below $90 per barrel (current price around $62). This backdrop gives the Federal Reserve some room to focus on the employment situation, which also has cooled.  more

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