According to our analysis USDJPY and EURUSD moved 54 pips, US30 moved 90 points and Bitcoin (BTC) moved 1018 points on US BLS Consumer Price Index (CPI) data on 15 January 2025.

USDJPY (18 pips)

EURUSD (7 pips)

US30 (90 points)

Bitcoin BTC (1018 points)

Charts are exported from JForex (Dukascopy).

December 2024 CPI Report: Core Inflation Falls Short of Expectations – What It Means for Markets

The U.S. Bureau of Labor Statistics released the Consumer Price Index (CPI) for December 2024 on January 15, 2025. While headline inflation was in line with expectations, core inflation (excluding food and energy) came in slightly cooler than anticipated. The headline CPI rose 0.4% month-over-month and 2.9% year-over-year, meeting forecasts. However, core CPI increased by 0.2% month-over-month (vs. 0.3% expected) and 3.2% year-over-year (vs. 3.3% expected). Here’s a breakdown of the report and its implications for traders.

Headline Takeaways

1. Headline Inflation: The all-items index rose 0.4% month-over-month and 2.9% year-over-year, reflecting steady inflationary pressures in energy and food prices.

2. Core Inflation Misses: Core CPI rose 0.2% month-over-month, below the forecasted 0.3%. Year-over-year, core inflation moderated to 3.2%, also below the expected 3.3%.

3. Energy Drives the Headline: Energy prices surged 2.6% month-over-month, with gasoline prices jumping 4.4%, making energy a key driver of the overall CPI increase.

4. Food Inflation Holds Steady: Food prices rose 0.3% month-over-month, with both food at home and food away from home contributing equally to the increase.

Market Implications of Core CPI Miss

Cooling Core Inflation Trends

• The 0.2% month-over-month rise in core CPI marked a modest cooling from the expected 0.3%. Year-over-year, the 3.2% core inflation rate signals gradual easing in underlying price pressures.

• Market Impact: A softer-than-expected core reading could prompt markets to reassess the Federal Reserve’s policy stance, increasing the likelihood of a pause or easing cycle sooner than previously anticipated.

Energy Price Surge Shifts Focus

• Energy prices rose significantly, with a 4.4% increase in gasoline prices dominating the report. However, on a year-over-year basis, energy remains a deflationary factor, down 0.5%.

• Market Impact: Energy-driven headline inflation may not alter the Fed’s trajectory if core inflation continues to cool, but it could buoy commodity markets and inflation-sensitive sectors.

Sector Breakdown

Shelter Remains Elevated

• Shelter costs rose 0.3% month-over-month and 4.6% year-over-year. Shelter remains the largest contributor to core inflation but showed signs of stabilization.

• Implications for Traders: Persistent shelter inflation could limit the Fed’s flexibility, supporting higher-for-longer interest rate expectations.

Food Prices Steady but Mixed

• Food at home (+0.3%) and food away from home (+0.3%) rose in tandem. Cereals and bakery products saw a sharp rise (+1.2%), while nonalcoholic beverages (-0.4%) and fruits and vegetables (-0.1%) declined.

• Market Impact: Stable food inflation supports consumer purchasing power, benefiting consumer discretionary stocks.

Transportation and Autos Drive Core

• Used cars and trucks rebounded with a 1.2% increase, while new vehicles rose 0.5%. Airline fares surged 3.9%.

• Implications for Traders: Rising auto and transportation costs could impact consumer sentiment and provide short-term tailwinds to related industries.

Fed Policy Implications

With core CPI coming in below expectations, markets may interpret the data as a sign that inflation is moderating toward the Federal Reserve’s target. While headline inflation remains steady, the softer core reading could shift the Fed’s tone toward a more dovish stance, especially if cooling trends persist.

Trading Opportunities

1. Equities: Growth stocks and rate-sensitive sectors may gain on expectations of a dovish Fed. Defensive sectors may face headwinds if inflation pressures ease.

2. Bonds: Treasury yields could decline, particularly on the shorter end of the curve, as markets price in reduced rate hike probabilities.

3. Commodities: Energy markets may rally due to the sharp increase in gasoline and natural gas prices. Gold could see gains if inflation expectations moderate.

4. Forex: The U.S. Dollar Index (DXY) might weaken if traders anticipate a softer Fed policy path.

Disclaimer: This blog post is for informational purposes only and should not be construed as financial advice. Always conduct thorough research and consider seeking advice from a financial professional before making any investment decisions.

Source: https://www.bls.gov/news.release/cpi.nr0.htm

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