Last week’s Dec. CPI print had something for everyone.

Core (+0.3%MoM SA) continued the recent string of lower prints, providing ammunition for those who see the Fed tightening cycle coming to an end.

But looking under the surface, the Fed can’t quite declare victory yet—meaning the terminal rate remains in play—as underlying service inflation won’t quite normalise.

Decomposing Core CPI

As in previous months (see October) we can remove various noisy items from Core CPI to get a measure of adjusted (underlying) Core. This is shown in the table below.

Starting with durables near the bottom, the following stands out:

• Removing used cars and trucks, the remaining durables aggregate printed negative for the first time (-1.0%MoM seasonally adjusted and annualized) and over 3 months is now roughly flat (which compares with 4.0%YoY). So durables are now contributing downward to underlying core sequentially—this is not just about used cars and trucks.

• Services accelerated again in December, however.

  • Headline services accelerated to +7.2%MoMA (from 4.2%MoMA in Nov.)