Pricing imprecision

Daily update

US December consumer price inflation is not likely to push the Federal Reserve into cutting rates immediately. The numbers were not especially threatening, although they hint at upward pressure on the PCE deflator (by repute, the Fed’s favored inflation measure). However, the interpolation rate (using less precise prices) hit a record 40%, raising quality questions. Politically sensitive prices like groceries soared, suggesting affordability will remain an issue.
China’s December exports were stronger than expected, although this is not a huge surprise. Trade outside the US continues more or less as normal. US importers (keen to avoid the fiscal burden of tariffs) have also rerouted supply chains via third-party countries.
US November producer price inflation offers some additional pricing information, and hints at whether US companies are using tariffs as an excuse to raise prices (rather than increase market share at foreign competitors’ expense).
US November retail sales should show US consumers are willing to cut back on savings to cover tariff costs. However, the cost of having fun may be rising more rapidly (airfares and restaurant prices have risen sharply), which might affect spending in other areas.