Unusual Details Amid Weakened December CPI Data

In December, the US core CPI rose 0.24% month-on-month, slightly lower than Citibank’s earlier forecast of 0.27% and the market consensus of 0.3%. Although details of fourth-quarter inflation data appear abnormal and difficult to interpret due to data collection issues caused by the government shutdown, the overall weak trend further confirms that underlying inflationary pressures are slowing in 2026.

According to trading desk information, and the latest report from the Citibank Veronica Clark team released on the 13th, despite significant opposing fluctuations in the data — such as strong entertainment service prices being offset by weakness in communications and moving services — core goods prices were generally flat, and housing inflation only rose moderately. The recent consecutive downside surprises indicate that inflation risks are no longer skewed to the upside.

As a result, market expectations for a dovish Federal Reserve path have been strengthened. Citibank economists anticipate that, as data in the coming months further confirms the trend of slowing inflation, Fed officials will feel more comfortable with rate cuts. Citibank maintains its baseline forecast: the Federal Reserve will further cut rates in March, July, and September.

The report notes that as first quarter monthly data is no longer significantly affected by government shutdown issues, it is expected that various service prices will see a more pronounced slowdown. Although current downside data contains some unsustainable fluctuations, the overall direction still points to easing underlying inflationary pressures.

Core data falls short of expectations

December’s core CPI posted a month-on-month increase of 0.24%. Breaking it down, core goods prices were flat for the month. Used car prices fell by 1.1%, offsetting moderate increases in furniture (up 0.5%) and apparel (up 0.6%). Other goods, such as computers, entertainment products, and alcoholic beverages, all saw prices remain about unchanged.

In terms of housing inflation, main rent and owners’ equivalent rent (OER) were slightly stronger than Citibank’s forecast, rising by 0.26% and 0.31% respectively, but still within this year’s typical range. Hotel accommodation prices recorded a strong increase of 2.9%. Overall CPI rose 0.31% month-on-month, with food prices up 0.7% and energy prices up a moderate 0.3%.

Data “abnormalities” caused by the government shutdown

Citibank pointed out in their report that details of December’s data remain “somewhat abnormal and difficult to interpret.” These distortions mainly stem from data collection issues related to the government shutdown.

The report analyzes that the use of carry-forward imputation in October and November CPI data resulted in a downward bias in inflation at that time, and a mechanical rebound in December. This may have pushed up prices for items like clothing and furniture. In contrast, wireless phone service prices fell sharply by 3.3% in December, but this was not affected by collection issues (data was actually collected in October and November), and instead reflects price declines due to quality adjustments. This means that this drop may not recur, but nor is a strong rebound likely.

Mixed performance of service sector prices

Excluding housing, core service prices showed mixed results, with greater volatility in individual items than usual. Medical services rose a stable 0.4%, entertainment services posted a very strong increase of 1.8%, airfares rose 5.2%, in line with the expected seasonal factors.

These increases were offset by weak prices in education and communications, which overall fell by 0.8%. Personal services prices fell by 0.2%, and moving services also remained weak. Analysts believe the strong rebound in entertainment services may reflect an adjustment to previously weak November data, or a one-off price hike for subscription services, and predict that such drastic swings will not recur in coming months. The rebound in dining prices will also boost core PCE inflation, which is likewise likely an adjustment to November data.

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