19.12.25 - US CPI - to handle with care

The long-awaited US CPI (Consumer Price Index) report delivered a clear upside surprise for markets.
Headline inflation eased to 2.7%, while core inflation fell to 2.6%, both well below expectations of 3.1% and 3.0%, respectively.

This release was the first consumer price report from the Bureau of Labor Statistics since the U.S. government shutdown ended. October’s CPI figures were never published, as the agency was “unable to retroactively collect these data.”

Importantly, the shutdown appears to have impaired the calculation of key housing components, particularly rents. As a result, rental inflation came in surprisingly and abnormally low, raising questions about data quality rather than signalling a sudden structural disinflation in housing costs.

On the labour side, weekly jobless claims were in line with expectations, steady and uneventful — neither flashing warning signs nor signalling renewed strength.

Markets: US equities rebounded, led by the Tech sector, with investors welcoming the softer inflation print and reading it as supportive for a more dovish Federal Reserve.
US yields moved slightly lower with the 10-year yield down to 4.13%.

My View: November’s data suggests that the widely feared tariff-driven inflation shock has not yet arrived. That said, caution is warranted. Tariff inflation is the most awkward kind of inflation. Historically, it tends to build slowly — then arrive all at once. The fact that it has not yet shown up meaningfully does not mean it will not.

The labour market tells a similar story. Employment is cooling, but not collapsing. This matters because the Fed has made its priorities clear. With inflation easing and jobs still holding up, policymakers can afford to wait, rather than rush into aggressive easing. However, the data set off excitement, hope and spreadsheets full of rate-cut fantasies.

Crucially, November CPI should not be over-celebrated. Missing October data and distortions in housing calculations mean this print may not fully reflect underlying inflation dynamics. In other words, this report likely paints a cleaner picture than reality currently deserves.

In short: the direction of travel is encouraging, but the data quality is questionable. One soft CPI print — especially a distorted one — does not make a trend.

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