People shop at a supermarket in the Manhattan borough of New York City on January 27, 2024.
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Prices paid by consumers in the market rose at a slower pace than originally reported, according to closely watched revisions released by the government on Friday.
The Labor Department's Bureau of Labor Statistics said updates to the Consumer Price Index showed that the broad basket of goods and services increased by 0.2% on a monthly basis, lower than the original reading of 0.3%.
While the change is modest, it helped confirm that inflation was moderating towards the end of 2023, giving the Fed more room to start cutting interest rates later this year.
Revisions occur as a matter of course for the BLS, but they received extra attention this year after the market reacted sharply to last year's changes. Signs that inflation will rise in 2022 more than expected have pushed Treasury yields higher and raised investor concerns that the Federal Reserve may keep monetary policy more restrictive.
Fed Governor Christopher Waller, in particular, has drawn attention to the 2022 reviews, drawing market attention to the latest round.
Excluding food and energy, the core CPI rose 0.3% during the month, the same amount originally reported. Fed policymakers tend to focus more on fundamental measures because they provide a better indicator of longer-term inflation movements.
Also, the headline reading for November was revised higher, rising by 0.2% versus the initial estimate of 0.1%.
Overall, the revisions suggest 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 numbers, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics. Furthermore, second-half revisions put the CPI 0.003 percentage point higher, according to Goldman Sachs calculations.
Paul Ashworth, chief North America economist at Capital Economics, said the revisions were a “damp squib,” though they may exert some influence on the Fed.
“Because some Fed officials were apparently concerned about a repeat of last year — when the adjustment led to increased monthly changes in core rates in the last few months of last year — the lack of any meaningful change this year, “The margin at least supports a rate cut earlier in May,” Ashworth added.
The Fed prioritizes the Personal Consumption Expenditures Price Index as its main measure of inflation. CPI readings feed into the Commerce Department's personal consumption expenditures account. The difference between the two measures is essentially that the CPI reflects the cost of items while the PCE index adjusts for what consumers actually buy, taking into account changes in behavior when prices rise and fall.
Futures market prices changed little after the data was released.
Traders still largely expect the Fed to hold its benchmark overnight borrowing rate steady when it meets next March, then cut it in May, followed by four more quarter-point cuts by the end of the year, according to CME Group forecasts.
Reuters contributed to this report.
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