Inflation Spikes in Latest Economic Report

Federal Reserve policymakers may not be quite as eager to start cutting interest rates as soon as March after fresh data showed inflation ticked up in December. The consumer price index (CPI) rose 0.3 percent in December after increasing 0.1 percent in November, the Labor Department's Bureau of Labor Statistics said on Thursday. From a year earlier, consumer prices rose 3.4 percent, more than the 3.2 percent economists polled by Reuters had expected.

U.S. central bankers want more confirmation that inflation is on a firm path toward their 2 percent goal before they reduce the policy rate, now in the 5.25 percent-5.5 percent range.

Thursday's data fell short of delivering that, with shelter prices failing to cool as policymakers have long expected. Used car prices, air fares, and medical care services prices also rose.

"The upshot of today’s inflation report is that the inflation dragon, while maimed, has yet to be slain," said Jason Pride, chief of investment strategy and research at Glenmede.

Futures contracts that settle to the Fed's policy rate are still pricing in about a 65 percent chance of a Fed rate cut in March, down from about a 70 percent chance seen before the report, and see Fed taking the policy rate down below 4 percent by the end of the year.

Those bets are far more aggressive than Fed policymakers themselves signaled last month, when they penciled in a year-end policy rate of 4.6 percent.

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