U.S. consumer prices are anticipated to have accelerated in December. This is because disruptions linked to the November government shutdown artificially depressed inflation levels, and these factors likely reversed in December, thereby reinforcing market expectations that the Federal Reserve will keep interest rates unchanged this month. It is understood that the U.S. December CPI data will be released tonight at 21:30 Beijing time. According to a survey of economists, driven by rising food and energy prices, particularly electricity costs associated with data centers, the Consumer Price Index (CPI) is expected to have increased by 0.3% in December. For the 12-month period ending in December, the CPI is forecast to rise by 2.7%, matching the increase seen in November. Excluding the volatile food and energy components, the core CPI is projected to have risen by 0.3% in December. The so-called core CPI is expected to have increased by 2.7% year-on-year in December, compared to a 2.6% rise in November. The U.S. Bureau of Labor Statistics estimated that the core CPI increased by 0.2% from September to November. The Federal Reserve uses the Personal Consumption Expenditures (PCE) Price Index as the key gauge for its 2% inflation target. There is a widespread expectation that the Fed will maintain the benchmark overnight rate within the range of 3.50% to 3.75% at its meeting scheduled for January 27-28. Due to the 43-day government shutdown, price data for October could not be successfully collected. Consequently, the Bureau of Labor Statistics employed a carry-over imputation method to estimate the relevant data, particularly for rent figures, in order to compile the November CPI report. Although price data was successfully collected in November, the collection efforts were concentrated in the latter half of the month, a period when retailers had already begun discount promotions for the holiday season. This led to distortions in the rent metric and broadly across goods prices. News emerged last week that despite moderate job growth, the unemployment rate still declined in December; influenced by this, consumer inflation is subsequently expected to climb. Oscar Muñoz, Chief US Macro Strategist at TD Securities, stated, "Due to data collection issues caused by the government shutdown, we anticipate a significant reversal in the Consumer Price Index report. However, the CPI will not fully reverse because the adjustment for rents won't be reflected until the April 2026 report." The U.S. Bureau of Labor Statistics employed a specific calculation method to estimate the monthly price changes for rent and owners' equivalent rent: it first calculated the sixth root of the six-month price change from the sample collected in November, and then, based on the October index level, derived the corresponding index level for that month (i.e., November). After excluding distortions caused by the government shutdown, economists anticipated that the November CPI report would show the gradual pass-through of the impact of the Trump administration's large-scale tariff hikes into inflation. Inflation had been running above normal levels prior to the longest government shutdown on record. Businesses have largely absorbed some of the import tariffs. The U.S. Bureau of Labor Statistics estimated that the Consumer Price Index increased by 0.2% between September and November. During this period, when using the carry-over imputation, the price level for October was treated as unchanged. The currently elevated inflation rate has already weakened U.S. President Donald Trump's approval ratings and is highly likely to become a political hot-button issue in 2026. At that time, Trump and his Republican allies will be fighting to maintain control of the U.S. Congress. Economists predict that prices for various goods will enter a phase of accelerated increases, with particularly significant rises expected for items like new cars, furniture, and apparel. However, the rental market may continue to show weakness. The Bureau of Labor Statistics uses a 6-month panel to calculate rent and owners' equivalent rent. The Bureau stated in late December, "The impact of the carry-over imputation applied in October 2025 will be eliminated when this housing panel is used again in April 2026." Sarah House, Senior Economist at Wells Fargo, said, "Given that holiday discounts were more prevalent in the goods sector, the rebound in goods prices is likely to be more pronounced than in services prices. Growth in services prices should also pick up in December, especially for seasonally sensitive categories like lodging and airfares." It is worth noting that the escalation of tensions between Fed Chair Jerome Powell and Trump has led most economists to believe that no rate cuts will occur before Powell's term ends in May. The Trump administration has initiated a criminal investigation into Powell, whom the Fed Chair has called a "pretext" affecting interest rates. Sung Won Sohn, Professor of Finance and Economics at Loyola Marymount University, stated, "Washington is creating a great deal of uncertainty, which is clearly bad for the economy, and ultimately I believe this could lead to higher inflation. We want interest rates to remain low, but this approach is not advisable."
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