U.S. stocks surged last Wednesday after the latest Consumer Price Index (CPI) report showed progress in managing inflation. The core CPI, excluding volatile categories like food and energy, slowed for the first time in months. The Dow Jones Industrial Average jumped 703.27 points, or 1.65%. Find out what the Consumer Price Index is HERE.
The S&P 500 climbed 1.83%, while the Nasdaq Composite advanced 2.45%. Economists had expected the CPI to increase by 2.8% annually. Overall, CPI rose by 0.2 percentage points to an annual rate of 2.9%, driven by gas and food prices.
Both categories are known for their volatility and were significantly impacted by external factors, including adverse weather and disease-related issues affecting key staples like meat and eggs. Energy prices, particularly gas and fuel costs, accounted for 40% of the overall monthly increase. Food prices also remained elevated, reflecting the ongoing inflationary pressures consumers have been facing.
Excluding energy and food, the core CPI rose just 0.2% from November and eased to 3.2%, down from the 3.3% rate it had maintained since September. This reduction was taken as a positive sign by the stocks.
Stocks rise as core inflation cools
Markets reacted positively this morning for a good reason: the Federal Reserve is OK with the headline CPI rising temporarily if it doesn’t spill into the core CPI, which happened in December,” said Eugenio Aleman, chief economist for Raymond James. The recent inflation, impacting American households, stems from the economic fallout of the Covid-19 pandemic. Despite the Fed’s aggressive rate cuts, prices remain 21% higher than in 2021.
That has been a critical talking point, especially with President Joe Biden preparing to hand over office to President-elect Donald Trump. Wages have risen faster than inflation for 20 months, according to the latest Bureau of Labor Statistics (BLS) data. However, they still lag behind where they were four years ago.
While inflation peaked at 9.1% in June 2022, the path to normalcy has been anything but smooth. The CPI started 2024 at 3.1%, spiked in March before dropping as low as 2.4% in September, and showed continued volatility in the following months. “This was a particularly painful report for American consumers,” commented Robert Frick, corporate economist at Navy Federal Credit Union.
“The cost of necessities that hurt household budgets, especially for lower-income Americans, were among the top reasons inflation rose in December. These include higher prices for food, both in restaurants and grocery stores, energy, shelter, and vehicle insurance.”
Overall, the latest CPI report indicates some progress in managing inflation, providing hope for further stabilization in the months ahead.