Yahoo Finance’s Brian Cheung breaks down the latest consumer price index (CPI) data, which shows that U.S. inflation increased in December and that inflation continues to outpace wage increases.

Video Transcript

JULIE HYMAN: We got to get to those consumer inflation numbers that were out this morning. As I mentioned, that 7% gain on the headline was bang in line with estimates. That drops to 5 and 1/2% year-over-year if you back out food and energy. Our Brian Cheung is on the case this morning. There you're looking at the month-over-month numbers. Brian, so I think if you look at the components here in terms of the implications for consumers, some encouraging signs, some not so encouraging signs if you look at the composition.

BRIAN CHEUNG: You have to unpack the whole report. It's an entirety. So let's talk about the summary statistics first. Again, the number coming in at 0.5% month-over-month, this is how much prices increased between November and December as measured by the Bureau of Labor statistics. The estimates on the Street were for 0.4%, so this coming in hotter than expectations.

On a year-over-year basis-- this is the big headline number you're seeing reported in most places-- 7% increase between 2020 and 2021. That's compared to the Street's estimates of 7.1%, although it is a tick-up from what we saw as the print for the month of November, which clocked in at 6.8%. And again, that is the largest 12-month increase since, as you mentioned, June of 1982.

At the time, the Pointer Sisters' "I'm So Excited" was topping the charts. But it's hard to get excited about these numbers when you see hot prints on even taking out the food and energy components of it, what they call the core CPI. That's still clocked in at 5.5%. That's the highest since 1991. So people even outside of the grocery stores are feeling this at the stores as well.

Some interesting detail categories that are worth looking at, specifically within the context of its December report, when you take a look at used cars and trucks increasing by 3.5%, airline fares also up by 2.7%. Owners' equivalent rent-- this is something I've been highlighting in previous past reports as well-- only up by 0.4%, but consider that when you're inking 12-month leases or 30-year mortgages, this could be a stickier form of inflation. So to see a positive non-zero print on that is noticeable as well.

Gasoline, though, we did see some price decreases, perhaps because of some of the administration's work on the Strategic Petroleum Reserve down about half a percent. And then also take a look at meats. This is something that people are paying attention to at the grocery store, down across the board by almost 1%, at least month-over-month.

Some other categories that are worth highlighting as well, food at elementary schools up-- or, rather, down by 12.4%. That makes sense because of a lot of the closures. So again, the CPI also being affected by Omicron as well.

And then some random categories for you-- jewelry up by 4%. Oranges, for some reason, month-over-month up almost 9%. And then men's sweaters, perhaps because my mom bought me a bunch of turtleneck sweaters over the holiday as well, up about 4.2%. So all interesting things coming from that CPI report this morning.

BRIAN SOZZI: Brian, that is good news about me. I've actually stopped buying steak for the most part, really hurt my post-gym workout gains. But look, we saw the futures tick up here after the CPI report. Perhaps, perhaps the market may view this as a peak in inflation readings. Anything in this report flesh that out?

BRIAN CHEUNG: Well, it's really interesting to see the bond market movement so far. It seemed like a lot of the movement was really kind of in the belly of the curve, the two or five-years. But also take a look at the US 10-year, down by almost three basis points. It was about 175 yesterday. I was looking at 172 as of this morning.

And what's interesting is that inflationary prints this high, as was expected, does add fuel to the argument that the Federal Reserve is going to have to move faster than originally thought, get more aggressive to get ahead of inflation, perhaps with higher and more aggressive interest rate hikes this year. Now, if they do that, that's going to get very, very interesting for the curve, if you raise the short end and the higher end is not moving. In fact, today you actually have the longer end of the curve coming down a little bit. That does challenge the ability of the Federal Reserve to hike interest rates without an inversion of the curve, which could possibly tilt into another recession.

Now, again, not to say that's the case right now. But when you take a look at real yields falling further as a result of this report, again, higher inflation, lower nominal yields, that means deeper real yields. That could very much be an interesting dynamic that the Federal Reserve wouldn't want to see. Perhaps, if anything, it just adds a little bit more credence to the Fed perhaps getting a bit more aggressive and moving earlier on their Fed balance sheet roll-off, if anything.

JULIE HYMAN: And Brian, finally, I want to ask you about another number that came out with this report. And it's not actually new data. It's data, I guess, that the BLS recrunches. I'm talking about real average weekly earnings and hourly earnings, both of those dropping by more than 2% on a year-over-year basis. And I guess this is, what, the numbers that come out in the jobs report? And then the BLS analyzes them to account for inflation, right?

BRIAN CHEUNG: Yeah, and the big reason for this is because these two reports, again, we got that, if you'll recall, last Friday, the employment situation. That's where they actually ask employers, how much are you paying in terms of average wages to your workers? But, obviously, that doesn't account for how much it costs those people that are earning wages to actually live when it comes to the adjustment for higher prices at the stores, where they use their paychecks, right?

So the CPI adds that second element of it because it measures actually how much prices have increased for expenditure categories across the board. So the BLS does that adjustment, as you mentioned, of the so-called real wages, which basically means inflation-adjusted wage earnings for these people. It's very much very volatile during this time period.

But what's also worth mentioning is that these are aggregate figures. So for the lower-wage categories, where we've actually seen more wage increases because there's been more bidding for a lot of these high-contact, lower-wage jobs, their experiences might be a little bit different than higher-to-medium-wage earners. So it's also to say kind a factor that they might be seeing different types of inflation as well, depending on where they live and what they're shopping for.

So especially in the nature of this recovery, everyone's going to be seeing a different side of the labor market and different sides of price increases as well. But again, the aggregate figures give you a little bit of taste over how the dynamics are playing out. And indeed, it is the case that inflation, at least for now, continues to outpace wage increases.

JULIE HYMAN: Yes, if you look, again, at the aggregate, important point there. Thanks so much, Brian. Appreciate it. We'll see you a bit later.