Today's inflation numbers

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Ethan Wu (0:36)

Thank Pushkin.

Today, the US government released the Consumer Price Index Inflation Report, telling us something about the US economy, about whether we're going to get a soft landing, and about where inflation is at. Today on the show, we talk through today's inflation numbers and what they mean for the wild ride at bond markets. This is Unhedged, the Markets and Finance show from the Financial Times and Pushkin. I'm reporter Ethan Wu here in the New York studio, joined for the first time ever from London by not Markets editor Katie Martin, but rather Markets columnist Katie Martin. Katie, hello.

Katie Martin (1:14)

Hello. Happy New Year, Ethan.

Ethan Wu (1:16)

Happy New Year. It's good to be back with our Katie Ethan episodes, even though this one's on a Thursday.

But Katie, tell the audience about your glorious new promotion to the heights of FT stardom.

Katie Martin (1:29)

You are hyping me up here, Ethan. This is completely unwarranted.

Ethan Wu (1:32)

I have to do it.

Katie Martin (1:33)

But yes, I've shifted over just to doing columnizing and thinking and doing podcasts and this sort of thing, and no longer rolling up my sleeves and doing things like bossing people around and editing copy and that sort of thing. So it's very nice.

Ethan Wu (1:47)

Yeah, you'll have to tell me what it's like to do some thinking before you do some writing. I think with a once a day newsletter, we don't often get the right balance of that over at the Unhedged newsletter, which you definitely should subscribe to, listeners. Never the less.

Katie Martin (1:57)

Yes, yes.

Ethan Wu (1:59)

Well, Katie, it's a big day in US economic data. We got the Consumer Price Index Report today. It's a much watched indicator of US inflation. And since inflation started going up in 2021, every month when this data comes out, people pour over it, argue about what it means, how you read the details under the hood, what it tells us about the economy.

And we're going to do a little bit of that today and try to explain some of the numbers that matter and some of the methodology considerations that go into it, which can get a little complicated, but I think does help paint a picture of where we are and if we're going to get this soft landing.

Katie Martin (2:30)

Yeah, no, exactly. Like year on year inflation, last time around it was 3.1% and the market thought, okay, maybe it'll come up a little bit. Maybe it'll be 3.2, but it's 3.4.

So this tells you that, you know, no, inflation is not like snapping back, like a kind of elastic band, but it's not going away and it's not going to fall as quickly as, you know, perhaps some of the real optimists out there had thought, you know, all those people who've been baking in, like, six Federal Reserve rate cuts over the course of this year, maybe they've got a little bit ahead of themselves.

So the month-on-month reading was 0.3%. Again, it was 0.1 last time around. It all just tells you that inflation, it hasn't gone mad again. We're not back in the bad old days, but it's just not going away.

Ethan Wu (3:20)

That's definitely true, Katie. I think with the headline rate, which means all inflation price categories, we've seen the year-over-year rate basically flatline for several months.

Where there's maybe a little more good news on the margin is in the core rate, which takes out food and energy, because those are relatively volatile. They depend on kind of global commodity markets. And in general, don't tell you exactly where inflation is going in the months ahead. The core rate has continued to come down on a year-over-year basis. It was at 3.9 in December, down a touch from the November reading.

Katie Martin (3:53)

But we're talking a touch, right? Like, the difference is tiny.

Ethan Wu (3:57)

Yeah, just a hair. And actually, the month-over-month reading was even a little bit hotter. But I think to get a sense of what the real inflation picture is, you have to really dig in a little bit. And a couple of categories of inflation stood out to me as particularly interesting.