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Market Update - Consumer Inflation Hovers Around Cycle High

Market Update - Consumer Inflation Hovers Around Cycle High

| December 11, 2019

The core Consumer Price Index (CPI), which excludes food and energy prices, rose 2.3% year over year in November, just below a cycle high of 2.4% growth last reached in September 2019.

Inflationary pressures have recovered noticeably since slowing earlier this year, as shown in the LPL Chart of the Day.

Core CPI has increased at least 2.3% year over year for the past four months, the first time that’s happened since September 2008. That momentum may seem concerning, but it’s a manageable pace in our view.


“Inflationary pressures have been a sign of economic strength recently,” said LPL Financial Chief Investment Strategist John Lynch. “Healthy consumer inflation is an especially encouraging sign, as it shows U.S. companies still have ample pricing power, even though international trade tensions and slower global growth have weighed on producer prices.”

Still, consumer inflation measured by core Personal Consumption Expenditures (PCE) remains just below the Federal Reserve’s (Fed) expectations. Core PCE, which excludes food and energy costs, rose 1.6% year over year in October, noticeably below the Fed’s 2% target. Core CPI is an important indicator of inflation, but core PCE tracks prices for a different (and more flexible) set of goods.

While core CPI isn’t the Fed’s main focus, its strength could be a secondary reason why the Fed may abstain from cutting rates more. Historically, core PCE has grown at a slower rate than core CPI, but both gauges tend to trend the same direction over time.

We’ll get more details about the state of inflation in the Fed’s policy announcement and post-meeting press conference this afternoon. Policymakers are expected to keep rates unchanged, but they’ll also present updated economic and fed funds rate projections. As usual, we’ll monitor the meeting and keep you updated.


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This Research material was prepared by LPL Financial, LLC.

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