Inflation Rises to 3.4%, Stocks Move Lower

Inflation rates came in higher than anticipated in December, as the Consumer Price Index (CPI) rose 0.3% in December, according to the U.S. Bureau of labor Statistics (BLS). Over the past 12 months, in1flation rose 3.4%, which is up from 3.1% in November and 3.2% in October.

The downward trend for inflation had buoyed hopes that the Federal Reserve would end its rate hikes. However, the slight uptick in December may have renewed fears that the tightening cycle may not be over or that the path and timeline for rate cuts have changed. As result, the markets declined following the latest inflation print.

What will the Fed do?

Economists had expected inflation to rise 0.2% in December, so the 0.3% increase was higher than estimated, mainly due to a 0.5% increase in shelter costs and a 0.4% jump in energy costs. The annual inflation rate for the shelter index was 6.2% in December.  

Core inflation, which excludes the more volatile food and energy prices, was also up 0.3% for the month and 3.9% over the past 12 months. The 3.9% reading is a little higher than the 3.8% that was projected, but it is down from 4% in November.

Investors will be anxiously waiting to see if the inflation numbers have any impact on the stance of the Federal Reserve when it next meets to discuss interest rates on Jan. 30-31. A couple of Fed presidents, Cleveland’s Loretta Mester and Richmond’s Tom Barkin, shared some of their thoughts with Bloomberg on Thursday.

“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 told Bloomberg, according to Reuters. “I think the December CPI report just shows there is more work to do and that work is going to take restrictive monetary policy.”

At a speech last week, Richmond Fed President Barkin told his audience to “focus less on the rate path and more on the flight path — is inflation continuing its descent and is the broader economy continuing to fly smoothly? Conviction on both questions will determine the pace and timing of any changes in rates.”

On Thursday, when asked by Bloomberg about the CPI numbers, Barkin reiterated that he needs to be convinced that inflation is headed to the 2% target before he is open to lowering rates.

Coinbase heads lower, Netflix moves up

The other big news this week was that 11 new spot bitcoin exchange-traded products (ETPs) began trading after the SEC finally approved them following repeated denials. The price of bitcoin had surged up to around $49,000 on Thursday but fell back to around $46,500 in the afternoon.

However, Coinbase Global (NASDAQ:COIN) was one of the biggest losers on the day, as its stock price was down about 6.4% to $141 per share. Coinbase, an exchange for trading bitcoin and other types of cryptocurrency, likely dropped on the approval of the bitcoin ETPs. Investors may have viewed the approvals as making the exchange less critical now because the ETPs can be acquired in more places. However, it is probably just a short-term reaction, as longer term, Coinbase should benefit from increased investment in bitcoin.

One the plus side of the ledger, Netflix (NASDAQ:NFLX) was one of the big winners on Thursday, as the stock price climbed almost 3% to around $492 per share on the news from the Consumer Electronics Show (CES) in Las Vegas that global monthly active subscribers on its ad-supported tier surged to $23 million. That’s a stark jump from $15 million in November.