Fed Officials Say December CPI Did Not Budge View of Inflation

• The rocky path of getting inflation back to the U.S. Federal Reserve's 2% target rate reflected in the latest Consumer Price Index (CPI) figures suggests that it would likely be too soon for the central bank to cut its policy rate in March, Cleveland Fed President Loretta Mester said on Thursday.
• Overall consumer price inflation on a 12-month basis rose to 3.4% in December from 3.1% the month before. However, excluding volatile food and energy costs, the pace of price increases fell to 3.9% from 4%, showing ongoing moderation in underlying price pressures.
• "I think March is probably too early in my estimation for a rate decline because I think we need to see some more evidence," Mester said. "I think the December CPI report just shows there is more work to do, and that work is going to take restrictive monetary policy."
• Mester cited the need for goods, housing, and shelter, excluding housing categories in the inflation measurement to "see more progress" as well as for wage gains to slow. Earlier on Thursday, the difficulty in bringing inflation back down was underscored by a stronger-than-expected reading on price pressures as Americans paid more for shelter and healthcare.
• Furthermore, inflation figures followed the closely watched monthly jobs report last Friday, which showed a still-resilient labor market, with employers adding 216,000 jobs in December and annual wage growth edging up. The data could deter the Fed from rate cuts.
• Investors are still maintaining bets, though, that the Fed will begin to cut its policy rate at the following meeting in March, according to an analysis of fed funds futures contracts by the CME Group. The Fed's rate-setting committee next meets on January 30-31, when the central bank is expected to keep its policy rate unchanged in the current 5.25% - 5.50% range.

(Source: Reuters)