In the U.S., inflation seemed to rear its ugly head in December, but its nothing to really worry about.
That’s the takeaway from a January 11 report by RBC economists Nathan Janzen and Claire Fan, who note that price growth on goods has ground “to a halt”.
Reported today, the headline U.S. Consumer Price Index (CPI) rose 0.3% in December, posting a gain of 3.4%, versus expectations of 0.2% and 3.2%, respectively.
RBC says there was a clear culprit in December.
“Nearly all the near-term inflation pressures in the U.S. towards the end of 2023 could be attributed to the services components, predominately shelter services, which alone accounted for 70% of the 0.3% monthly growth in December,” Fan and Janzen said. “Elevated growth in rent costs remains the sticking point but should continue to slow as easing in market rent measures feeds through to leases with a lag.”
But fund manager Barry Ritholtz today argued that the CPI was in fact, based on bad data and that apartment rents have actually been falling for some time.
“The peak in rent increases occurred Summer of 2022, and the trend has been downwards since,” he said. “The Apartment List National Rent Report showed that the rental market ended 2023 with a fifth straight month of negative rent growth Nationwide, median rent fell by 0.8% in December — even as the BLS modeled, laggy measure showed a rise.”
The RBC economists predict that a rate cut is coming nonetheless.
“U.S. inflation readings surprised to the upside in December upon a larger than expected increase in some services components,” they wrote. “Still, underlying details should do little to alter the narrative of easing inflation pressures in the U.S. – goods inflation ground to a halt by end of 2023, and the scope of price pressure was also left largely unchanged in December from already-narrow level a month ago. The Fed in December made the first important step to signal that potential interest rate cuts are on the horizon. Still, the central bank is expected to stay on a cautious path, especially against a still solid consumer backdrop and persisting resilience in the labour market. We expect the first cut to the fed funds target range in Q2.”
Comment