CPI Report for December Jumps 2.9%, Core Prices Come In Cooler To Lower Yields and Propel US Stocks

According to the US Bureau of Labor Statistics, the US Consumer Price Index (CPI) for all urban consumers increased by 0.4% in December 2024 compared to a 0.3% jump in November.

Headline CPI rose 2.9% year-over-year in December, in alignment with projections from economists.

Furthermore, core CPI, excluding the volatile food and energy index, rose 3.2% in the past 12 months, lower than the 3.3% anticipated by industry experts. The Core CPI growth rate of 0.2% for December was lower than the 0.3% in the previous four months.

The cooler Core CPI reading comes as a relief for many economists and market participants who were concerned that inflation was stuck above the US Federal Reserve's 2% target.

Cooler Core CPI Boosting Hopes of Rate Cuts

While a hotter-than-expected CPI reading was more likely to add downward pressures on equity and keep yields elevated, a 2.9% increase in inflation, as the markets expected, keeps the hope of a second rate cut by the US Federal Reserve alive.

The futures market indicated that traders anticipate close to 40 basis points in rate cuts from the US Fed this year, up from close to 30 bps prior to the CPI report data release.

Meanwhile, US 10-year Treasury yields slid to 4.655% soon after the CPI report was released. Yields had recently reached a two-year high of 4.8%.

An Upcoming Stock Market Rally

The latest inflation print has the potential to trigger a market rally, as all of the "Magnificent Seven" stocks gained between 1% and 3% during premarket hours on 15th January.

Meanwhile, the favourable inflation print for the US stock market was also boosted by bumper Q4 2023 results by banking giants as the dollar fell in tandem.

JPMorgan (NYSE: JPM) recorded its bigger annual profit in 2024. Meanwhile, BlackRock (NYSE: BLK) posted a record £9.44 trillion ($11.6 trillion) in assets, whereas Goldman Sachs (NYSE: GS) witnessed profits double in the latest quarter.

Elsewhere, futures tied to the Dow Jones Industrial Average increased by a whopping 650 points, or 1.5%. At the same time, S&P 500 futures and Nasdaq 100 futures gained 1.4% and 1.6%, respectively.

"Wednesday's softer-than-expected CPI print offers some relief, especially after last Friday's hot employment numbers, that the Fed may be able to still cut interest rates in 2025," said Skyler Weinand, chief investment officer at Regan Capital.

Elsewhere, gold prices jumped by 0.78% to £2,186.57 ($2,689.38) per ounce on the economic developments.

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