Equities Lit Up By Surprisingly Low U.S. CPI Reading
December 18, 2025
Released U.S. consumer price data for November this Thursday overshadowed a continuing parade of scheduled central bank interest rate decisions, with the greatest impact directed at stock markets in Europe and the United States.
There had been atypically high uncertainty about what the CPI release would show due to the U.S. federal shutdown-related lull in prior U.S. inflation results. A consensus had cemented among analysts that inflation likely ticked 0.1 percentage point above September’s reading to 3.1% overall and 3.0% excluding food and energy. Instead, the report revealed a drop in overall inflation from September’s 8-month high of 3.0% to a 5-month low of 2.7% and an even more impressive 57-month low in core CPI of 2.6% following the September reading of 3.0%. While energy costs accelerated as assumed, inflation fell among food and non-energy services such as shelter.
Shortly after U.S. trading had opened, the Nasdaq and Russell 2000 are showing gains of almost 1.5%, and stock exchanges in major euro area centers were 0.5-0.8% firmer. The British FTSE (+0.2%) lagged behind due to a closer-than-anticipated 5-4 voting backing the Bank of England’s expected 25-basis point interest rate cut. Asian stock markets closed before the U.S. CPI news and mostly lost ground, with drops of 1.5% in the South Korean Kospi and 1.0% in Japan’s Nikkei-225 index.
Bitcoin‘s price was boosted over 2.0% by the CPI report, while Comex gold dipped 0.3%. WTI oil is 0.7% higher in price.
Ten-year sovereign debt yields are down by four basis points in the United States, two bps in Italy and a basis point in Germany and France, but the 10-year Japanese JGB is only steady, and the British gilt has risen by two basis points.
The dollar has slipped on hope that resumed U.S. disinflation will tilt Fed officials to be more inclined to lower interest rates, but the reaction of forex traders has been comparatively muted thus far.
Among the many central bank interest rate announcements made today, the most surprising came from the Bank of England‘s. The rate cut of 25 basis points to 3.75% — a low not seen since January 2023 — met expectations, but following a sharper slide in British consumer price inflation to an 8-month low of 3.2%, market participants were prepped for a clearly more dovish defense of today’s action than they got. Only Governor Bailey switched his vote of no rate change at the prior meeting, and he made clear that his switch was made with hesitation:
Inflation expectations have not yet shifted downward sufficiently following the past few years of persistent above-target inflation. And the strength in forward-looking wage growth indicators is hard to reconcile with the downward momentum in current indicators of inflation and pay as well as rising unemployment.
Chief economist and member of the the Monetary Policy Committee Huw Pill, who maintained a preference for not cutting the interest rate, added:
I continue to judge the risk of inflation stabilizing at above-target levels owing to structural changes in price and wage-setting behavior as greater than the risk of inflation undershooting the target owing to weak demand. Given this balance of risks, the case for the further withdrawal of monetary policy restriction is becoming more finely balanced, and any additional steps in this direction should be cautious.
The European Central Bank’s message was unremarkable and in keeping with past signaling. The policy-operative deposit rate, which has been at 2.0% since a 25-basis point cut last June, was again left unchanged. Projected GDP growth in 2026 and 2027 is fractionally above what the September forecasts had embodied, but a marginal bump-up in the 2026 inflation forecast was also done.
The Governing Council today decided to keep the three key ECB interest rates unchanged. Its updated assessment reconfirms that inflation should stabilise at the 2% target in the medium term. Interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it… [We] are not pre-committing to a particular rate path.
Fresh central bank interest rate reductions also did not occur in Sweden, Norway, the Czech Republic or Taiwan.
- The Swedish Riksbank policy rate has been at 1.75% since a 25-basis point cut in September versus a peak of 4.0% in 2023 from May to December. “If the outlook for inflation and economic activity holds, the policy rate is expected to remain at this level for some time to come.”
- Norway‘s policy interest rate (4.0%) has only dropped so far by a total of 50 basis points from the 4.5% peak maintained from October 2022 until this past June. “The Committee judges that a restrictive monetary policy is still needed. Inflation is still too high. The krone exchange rate has depreciated since the September Report and contributes to raising inflation prospects somewhat going forward.”
- The last interest rate cut at the Czech National Bank happened seven months ago. At 3.5%, the key 2-week repo rate is now just half its peak of 7.0% from June 2022 until an initial cut in December 2023. “Relatively tight monetary policy compared to the past is still needed” due to elevated credit growth, a tight labor market, and faster-than-desired growth in services inflation and property prices.
- Twenty-one months have elapsed since the last rate hike by the Central Bank of the Republic of China (Taiwan). The rate level is now 2.0%. Although inflation is well-contained, economic growth is robust, and Taiwan faces enormous geopolitical uncertainty.
Some of today’s other data release highlights include
- A reversal of New Zealand GDP growth following a 1.0% quarterly drop in the second quarter to a 1.1% advance in 3Q. Year-on-year growth of 1.3% met expectations despite a slight upward revision to the quarter-on-quarter change.
- French business confidence jumped a full index point to an 18-month high of 98.7, still a tad below the long-term average. The retail and trade sector reading of 104.1, a 23-month high, was well above 91.9 just 3 months ago.
- Belgian consumer confidence slid 3 points this month and back into pessimistic territory from November’s 49-month high of +2.
- Construction output in Euroland rose 0.9% in October but was still just 0.5% above its year-earlier level.
- November producer price inflation readings were at +2.9% in South Africa, -2.4% in Poland and -3.3% in Portugal.
- The Philly Fed manufacturing index weakened to a two-month low of -10.2 this month from -1.7 in November.
- New U.S. jobless insurance claims last week (224K) were very close to analyst expectations.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: Bank of England, Central Bank of the Republic of China, Czech National Bank, European Central Bank, Norges Bank, Swedish Riksbank, U.S. consumer prices
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