Wall Street got exactly what it wanted from December inflation: not perfect, but “not worse.”
Markets rallied after core CPI rose 0.2% month over month in December, slightly below forecasts and enough to flip stocks higher after premarket weakness.
The SPDR S&P 500 ETF $SPY ( ▼ 0.2% ) erased early losses and moved up as traders reacted to the softer core number.
The Numbers: Headline Hotter, Core Cooler
Economists expected both headline CPI and core CPI to rise 0.3% month over month.
Instead:
headline CPI rose 0.3% as expected
core CPI rose 0.2%, coming in a notch lower than forecast
That 0.1 difference might sound tiny, but in rate markets, it’s the difference between “uh oh” and “we’re fine.”
Prediction Markets Were Leaning Hot
Event contract pricing tied to December CPI suggested traders were positioned for:
headline inflation at 0.3%
higher odds of inflation printing above expectations than below
So the softer core number forced a small relief repricing, helping risk assets bounce.
A Reminder: The Prior CPI Was Not as Clean as It Looked
November’s CPI report showed core inflation cooling more than expected and pushed the annual rate down to a 4.5-year low.
But that report came with an asterisk.
The Bureau of Labor Statistics assumed housing-related components were flat in October, which flattered the number. That detail matters because shelter inflation is still one of the stickiest pieces of the CPI basket.
Bottom line: the market is not celebrating a disinflation victory lap. It’s celebrating that inflation did not reaccelerate. And right now, that’s enough to send stocks higher.