U.S. stocks surged on Wednesday after the latest Consumer Price Index report showed progress in controlling inflation. The CPI rose to an annual rate of 2.9%, slightly higher than the 2.8% economists had anticipated. However, the core CPI, which excludes volatile food and energy prices, slowed for the first time in months, rising only 0.2% from November and decelerating to 3.2%.
The Dow Jones Industrial Average soared by almost 700 points in morning trading, while the S&P 500 rose by 1.69%, and the Nasdaq Composite climbed 2%. Investors are hopeful that the Federal Reserve might continue its rate-cutting campaign, a sentiment bolstered by the latest CPI data. Energy prices, particularly those of gas and fuel, accounted for 40% of the total monthly increase in the CPI.
Stocks soar on CPI progress
Food prices also remained elevated due to ongoing pressures from weather conditions affecting crops and diseases impacting livestock. These factors highlight food and gas as among the most frequent encounters consumers have with inflation, impacting especially lower-income Americans.
Eugenio Aleman, chief economist for Raymond James, stated in a note, “The Federal Reserve is OK with watching the headline CPI go up temporarily if that increase does not spill over into the core CPI, and this is what happened in December.”
This CPI report was the final one for 2024 and came just before President Joe Biden hands over leadership to President-elect Donald Trump. Inflationary pressures, partially a fallout from the Covid-19 pandemic, have made everyday items roughly 21% more expensive than in 2021. Although inflation has decelerated from a peak of 9.1% in June 2022, the journey back to typical rates has been uneven.
This past year’s CPI started at 3.1%, saw an increase in March, but ultimately showed a downward trend, hitting 2.4% in September before recent fluctuations. Robert Frick, corporate economist at Navy Federal Credit Union, acknowledged the “painful” increases in necessities such as food, energy, shelter, and vehicle insurance as central reasons for the rise in inflation in December, despite markets reacting positively to the CPI data.