Analysts welcome inflation report but urge caution as shelter pressures remain

• Core CPI rose 0.2% month-over-month and 2.6% year-over-year, while headline inflation increased 2.7% annually, unchanged from November
• Shelter costs were the largest monthly contributor, rising 0.4%, with food prices up 0.7% and energy prices increasing 0.3%
• Wells Fargo expressed optimism about continued progress toward the Fed's 2% inflation target in 2026, while other analysts noted elevated shelter and food costs justify the Fed's cautious stance on rate cuts

Summary: December CPI Shows Modest Inflation Progress, Shelter Costs Remain Elevated

US inflation data for December revealed continued moderation, with core CPI rising 0.2% month-over-month and 2.6% year-over-year—the slowest annual pace since March 2021. Headline inflation increased 0.3% monthly and 2.7% annually, matching economist forecasts.

Key Data Points:

• Core CPI (excluding food and energy): +0.2% monthly, +2.6% annually
• Headline CPI: +0.3% monthly, +2.7% annually (unchanged from November)
• Shelter costs: +0.4% monthly (largest contributor to increases)
• Food prices: +0.7% monthly, +3.1% annually
• Energy prices: +0.3% monthly, +2.3% annually

Analyst Perspectives:

Wells Fargo called the report "generally encouraging," noting core CPI rose less than forecast and expressing conviction that inflation will continue progressing toward the Fed's 2% target in 2026. However, the firm cautioned it's "not yet time to pop the champagne."

Kathleen Brooks of XTB emphasized the 0.3% monthly increase justifies the Federal Reserve's cautious stance on future rate cuts, noting elevated shelter and food costs keep inflation above the 2% target without a clear disinflationary trend.

Market Implications:

Despite positive inflation data, stock indices struggled to gain traction. IG's Axel Rudolph attributed this to "investor fatigue," even as the report reinforced Fed rate cut expectations alongside solid JPMorgan earnings and improved global growth outlooks.

The report suggests the Fed may gradually move rates toward neutral, though persistent shelter pressures and food/energy cost increases indicate inflation challenges remain.