Inflation Slows to 3.2% for December 2024

TLDR

• It’s that time of the month again!
• New CPI data is out, showing that inflation is cooling off
• The crypto market ran hot at the end of the week, likely in part due to this information. 

According to the Bureau of Labor Statistics, the consumer price index (CPI) for December 2024 increased by 0.4% compared to the previous month, bringing the 12-month inflation rate to 2.9% — a significant drop from the previous year. Economists had forecasted the same annual figure, so we’re right on the money.

Source

Core CPI, which excludes volatile food and energy prices, inched down to 3.2% — a slight improvement compared to November and just under the 3.3% expectation.

What’s Driving Inflation Today?

Inflation is the gradual increase in prices for goods and services. Think of it as your morning bagel getting pricier over time. December’s report delivered a mix of good and bad news for consumers — here’s how it breaks down:

The Usual Suspects to Watch

1. Energy Prices: An uptick in energy prices (+2.6% monthly) accounted for a whopping 40% of this month’s CPI gain. Gas, specifically, surged 4.4%. If you’re filling up at the pump, you’ve likely noticed.
2. Housing Costs: Shelter prices, which make up roughly a third of the CPI, climbed by 0.3% in December and jumped 4.6% from a year earlier. For context, this is the smallest annual increase since January 2022 — so, there’s a faint glimmer of hope if you’re a renter.
3. Food Costs: Food prices nudged up by 0.3% last month, leaving your grocery bill just that much higher. Annual gains hit 2.5%, with outliers like eggs spiking 36.8% for the year (better start prepping for your new crypto portfolio to offset all those omelets).

The Outliers

Used cars and trucks, a favorite inflation culprit during the pandemic, rose by 1.2% after months of declines. New vehicles weren’t exempt either, rising 0.5%. Transportation services saw a 0.5% uptick and are now up 7.3% annually. Want more bad news? Auto insurance jumped 0.4% — and a hefty 11.3% year-over-year. All of this reinforces key pain points for consumers.

How Did the Markets React?

The markets seemed to breathe a sigh of relief. Stock futures surged while Treasury yields fell after the report was released. Why the optimism? 

Investors saw December’s numbers as a sign that inflation isn’t spiraling out of control. There’s cautious hope that the Federal Reserve may consider pausing interest rate hikes in its upcoming policy meetings. Lower interest rates could make borrowing cheaper, which can impact everything from mortgages to crypto ventures.

But — and this is a big “but” — inflation is still above the Fed’s 2% target. Until we close that gap, additional rate hikes aren’t entirely off the table. 

Why CPI Information Matters to Crypto Users

If you’re new to the crypto world, you might wonder, “What does inflation have to do with cryptocurrency?” The answer is, well, a lot. Here are a few key ways today’s inflation data intersects with crypto:

1. Hedge Against Inflation: Some investors turn to cryptocurrencies like Bitcoin as a hedge against inflation. When traditional fiat currency loses purchasing power, digital assets can hold (or even increase) value over time.
2. Market Dynamics: Lower inflation could stabilize risk assets, including cryptocurrencies. Lower interest rates (if the Fed pauses hikes) make riskier investments more appealing to some investors.
3. Macro Trends Impact Adoption: A slowdown in inflation and stabilized prices could create a more favorable environment for crypto adoption as people regain confidence in the economy.

While traditional markets cheered the latest inflation data, crypto markets often respond differently. Keep an eye on major altcoins and Bitcoin prices to gauge how digital currencies react post-announcement.

December’s data signals progress in the right direction, but no one’s popping champagne just yet. Lower inflation means fewer price increases for goods and services, which is good news for consumers. However, challenges in energy, food, and transportation costs remain concerns for the average household.

For crypto newbies, understanding inflation is an essential part of grasping market dynamics. Whether you see crypto as a hedge or a speculative venture, broader economic forces like inflation will always play a role.