People shop at a supermarket in the Manhattan borough of New York City on January 27, 2024.
Charlie Triballeau | AFP | Getty Images
Prices paid by consumers in the market rose at an even slower pace than initially reported, according to closely watched revisions released by the government on Friday.
Updates to the consumer price index showed the broad basket of goods and services measured rose 0.2 percent in the month, less than the 0.3 percent initially reported, the Labor Department’s Bureau of Labor Statistics said.
While the change is only modest, it helped confirm that inflation was moderating at the end of 2023, giving the Federal Reserve more room to start cutting interest rates later this year.
Revisions come as a matter of course for the BLS, but they garnered extra attention this year after the market reacted strongly to last year’s changes. Signs that inflation in 2022 rose more than expected sent Treasury yields higher and fueled investor concern that the Fed could keep monetary policy tighter.
Fed Governor Christopher Waller, in particular, had drawn attention to the 2022 revisions, prompting market attention for the latest round.
Excluding food and energy, the so-called core CPI rose 0.3% for the month, as initially reported. Fed policymakers tend to focus more on core measures, as they provide a better indication of long-term inflation movements.
Also, the November headline was revised higher, 0.2% versus the initial estimate of 0.1%.
Overall, the revisions show that the headline CPI accelerated at an annual rate of 2.7% in the fourth quarter, down 0.1 percentage point from the initially reported figure, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics. Additionally, second-half revisions put the CPI higher — by 0.003 percentage points, according to Goldman Sachs calculations.
The revisions amounted to “a wet dump,” said Paul Ashworth, chief North American economist at Capital Economics, although they could have some influence on the Fed.
“While some Fed officials were apparently worried about a repeat of last year — when the revision drove monthly changes in key rates in the final months of last year — the lack of any meaningful change this year, at least at the margin, supports a rate cut earlier in the year.” May,” added Ashworth.
The Fed prioritizes the personal consumption expenditure price index as the primary gauge of inflation. CPI measurements feed into the Commerce Department’s PCE calculation. The difference between the two measures is essentially that the CPI reflects the cost of items, while the PCE adjusts for what consumers buy, taking into account changes in behavior when prices rise and fall.
Futures prices were little changed after the data was released.
Traders still largely expect the Fed to hold its key overnight lending rate steady at its next meeting in March, then cut in May, to follow cuts of another four percentage points by the end of the year, according to CME Group forecasts.
— Reuters contributed to this report.
Don’t miss these stories from CNBC PRO: