'In Line with Expectations' US December CPI Eases Market Concerns... 10-Year Treasury Yield Plummets to 4.6% Range

December CPI Up 2.9% Year-on-Year
Core CPI Rises 3.2%, Falls Short of Expectations
New York Stocks Rise, Treasury Yields Drop as Inflation Concerns Ease
10-Year Treasury Yield Falls Over 10bp to 4.6% Range

The US consumer price index (CPI) inflation rate for last month matched market expectations. The core CPI inflation rate, which reflects the underlying trend in prices, slowed for the first time in five months, falling short of forecasts. As recent inflation concerns have eased, Treasury yields have plunged and the New York stock market has risen across the board.

On the 15th (local time), the US Department of Labor announced that the CPI for December last year rose 2.9% compared to the same period the previous year. It increased by 0.4% compared to the previous month. These figures were 0.2 percentage points and 0.1 percentage points higher than the November rates (2.7% and 0.3%, respectively), but were in line with expectations.

By category, energy prices rose 2.6% compared to the previous month. This was due to a 4.4% jump in gasoline prices, accounting for more than 40% of the total increase in prices. Food prices rose 0.3%. However, inflation did not spike unexpectedly as housing cost inflation remained steady and the rise in medical service costs slowed.

The core CPI increased 0.2% month-over-month and 3.2% year-over-year. Both figures were below the October increase and market forecasts (0.3% and 3.3%, respectively). Notably, the month-over-month increase slowed for the first time in five months after maintaining a 0.3% rise for four consecutive months since August last year.

The core CPI excludes volatile energy and food prices, providing an indicator of the underlying trend in inflation. Since the Fed places more emphasis on the core CPI than the overall CPI, last month’s retail price inflation can be seen as lower than expected.

However, concerns about "Trumflation" (inflation caused by Trump’s policies) are growing, and inflation rates remain above the Fed’s 2% target, making it likely that the benchmark interest rate will remain unchanged for the time being. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on this day reflected a 97.3% probability that the Fed will keep rates steady at the Federal Open Market Committee (FOMC) meeting scheduled for the 28th-29th. The chances of rate freezes in March and May are also high, at 74% and 56%, respectively.

Sal Guatieri, senior economist at BMO Capital Markets, said, "The Fed still has work to do in the fight against inflation and has changed its plan to lower restrictive rates more slowly. Rates will be maintained at the end of this month, and the Fed may not resume rate cuts until there is clarity on the inflation impact of tariffs that could be implemented next week."

Meanwhile, the market breathed a sigh of relief following the CPI announcement. The US 10-year Treasury yield, a global bond yield benchmark, fell 14 basis points (1 bp = 0.01 percentage points) from the previous trading day to 4.64%, while the 2-year Treasury yield, sensitive to monetary policy, dropped 9 basis points to 4.26%. The New York stock market rose across the board. As of 10:25 a.m. in New York, the Dow Jones Industrial Average was up 1.67% from the previous day, while the S&P 500 and Nasdaq indices surged 1.73% and 2.28%, respectively.

This content was produced with the assistance of AI translation services.