In December, the latest data from the Bureau of Labor Statistics (BLS) reveals that consumer prices in the United States exceeded market expectations, rising by 30 basis points to 3.4% year-on-year (y/y), compared to November’s 3.1% y/y. This increase was primarily attributed to a slower rate of decline in energy prices, coupled with a robust pace of wage growth.
Energy prices experienced a milder decrease of 2.0% y/y in December, a significant improvement from November’s 5.4% y/y decline. This was largely driven by a slower decrease in fuel and gasoline prices relative to the previous year. On a month-on-month basis, headline inflation in the U.S. rose by 0.3%, compared to November’s 0.1% m/m increase.
Despite the uptick in inflation, financial markets appear to anticipate that the U.S. Federal Reserve will refrain from additional rate hikes in the near term. The CME FedWatch tool indicates a 95.3% and 71.8% probability that the Fed will maintain interest rates at its January and March policy meetings, respectively.
In contrast, China faces growing deflationary pressures, marked by three consecutive months of negative consumer prices. According to data released by the National Bureau of Statistics, China’s headline inflation declined by 0.3% y/y in December, showing a slight improvement from November’s -0.5% y/y. The moderation in the pace of contraction is attributed to increased demand and a softer decline in pork prices.
Food prices in China experienced a slower decline of 3.7% y/y in December, with pork prices dropping at a softer rate of -26.1% y/y compared to November’s -31.8% y/y. Non-food inflation, however, increased by 0.5% y/y, driven by higher price growth in clothing, health, and transport.
Despite the Chinese central bank’s commitment to macroeconomic adjustments to boost the economy and stimulate price resurgence, deflationary pressures persist as significant risks. Challenges include subdued domestic demand, ongoing uncertainties in the property market, and a looming local debt crisis.
