Egg prices surge as US inflation picks up

U.S. energy and food prices rose sharply last month, making the process of price stabilization still difficult to achieve. Labor Department data showed that average prices in December were 2.9% higher than the same period last year, up from 2.7% in November.

The monthly report pointed out that energy prices contributed more than 40% to the rise in inflation last month. In addition, egg prices rose more than 36% compared to 2023 due to supply shortages caused by the impact of the avian flu outbreak. However, price increases for other goods were lower than expected, alleviating market concerns about the possibility of the U.S. central bank taking more aggressive measures to stabilize prices.

Excluding volatile food and energy prices, the so-called core inflation rate rose only 3.2% compared to December 2023 and only 0.2% compared to November, lower than analysts' expectations. Economists believe this indicator better reflects underlying trends. Affected by this, U.S. stocks surged in New York's early trading on Wednesday, and bond yields (U.S. government debt rates) fell, reflecting market relief.

Seema Shah, chief global strategist at Principal Asset Management, said that the latest data should alleviate "the anxiety that the U.S. is at the beginning of a second wave of inflation." She also pointed out, "Perhaps most crucially, as investors look for a narrative they can comfortably embrace, markets are likely to swing wildly around the next few data releases, not just days."

Since inflation rates exceeded 9% in 2022, U.S. inflation has fallen significantly. Investors had expected that the Federal Reserve, which had raised interest rates to their highest level in more than two decades to address inflation, would cut rates this year as a result. However, if economic growth is strong, the likelihood of the Fed cutting rates decreases. Therefore, stronger-than-expected job data last month has raised doubts about how much U.S. interest rates may fall in the coming months.

Investors are also concerned that President-elect Donald Trump's tariffs, mass deportations of immigrants, and tax cuts could put upward pressure on prices. If this does indeed drive inflation, it would also reduce the likelihood of the Fed cutting rates. Last month's data showed that prices for many goods, including used cars, airfares, healthcare, and auto insurance, all increased.

Grocery prices rose 0.3% for the month and 1.8% year-over-year. Rent and other housing prices, which have been a major driver of inflation, rose 0.3% from November, the same increase as the previous month, and 4.6% from December 2023. Gasoline prices rose 4.4% from November but remained lower than the same period last year.

The market generally expects the Federal Reserve to keep its current key interest rate unchanged at around 4.3% at its meeting this month. Tina Adatia, head of fixed income for client portfolios at Goldman Sachs Asset Management, said that inflation needs to cool further before the Fed will cut rates further, but today's data will keep those hopes alive. She said: "While today's data is unlikely to put a January rate cut back on the table, it strengthens the argument that the Fed's rate-cutting cycle is not over."