Inflation Chills, Sales Thrill

[Andrew Postell]

December inflation data was released yesterday (Tuesday, January 13th) and PPI stayed calm: headline +0.2%, goods +0.9% (energy‑driven), and services flat, keeping pipeline inflation contained. Core PPI ticked up 0.2% m/m and 3.5% y/y, but the heat was mostly in goods, not services. CPI remains tame with +0.3% m/m, +2.7% y/y, and core +0.2% m/m, underscoring steady disinflation.

Meanwhile, Retail Sales beat at +0.6%, and the GDP control group rose 0.4%, signaling solid Q4 consumption. Markets liked the combo: the 10‑year held near 4.14%, reflecting stronger demand without inflation pressure — a recipe for quiet rates and range‑bound MBS.

For the Fed, this cocktail argues for patience. With the policy rate at 3.50%–3.75% post‑December cut, nothing in the data forces their hand for January. Stronger spending reduces urgency for more easing, while easing inflation removes the need for tightening. A January hold remains the base case, with any next move pushed later into 2026.

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