Inflation: Unpacking the numbers in the latest Consumer Price Index report

Yahoo Finance's Brian Cheung breaks down the hottest inflation print since 1982.

Video transcript

- For more context on the headline CPI number and what the Fed's next move might be, want to bring in our Yahoo Finance Fed correspondent Brian Cheung. And Brian, I know the Fed meets for its last meeting of the year next week. Does this all but seal a quicker taper?

BRIAN CHEUNG: Well, it certainly does, at least for right now. You can see what bond markets are doing. Not pricing in any sort of surprise, at least for the Fed's reaction function, at least for right now. But let's unpack what the actual numbers were in this report when you take a look at the 0.8% month over month headline increase in the consumer price index.

That was above the Street's estimates of 0.7%. On a year over year basis, however, the headline number, which is what you've been seeing a lot, I imagine throughout the morning, was that 6.8% figure. That is a jump up compared to the October year over year increase that we had seen of 6.2%.

And the magic year is 1982 when Survivor released Eye of the Tiger that you would have to go back to find a number of that high. And it seems like the Fed might be looking at the White-- the eyes of the light of inflation itself. Because when you take a look at certain types of categories as well within the CPI report take a look at gasoline, for example, going up by 6.1% on a month over month basis.

Now, of course, that's something that the Fed strips out when they take a look at the core CPI figures, which came in at 4.9%. But take a look also at used cars and trucks up by 2.5%. And then also pay attention to owners equivalent rent. This is a stickier measure of inflation, because obviously, leases and mortgages last longer than just a few months. That was up by 0.4%.

And as I wrap up here, a few other categories worth mentioning, men's suits up 6.7%. And for some reason, fresh sweet rolls, coffee cakes, and donuts up 3.5% as well.

- Go figure. How closely is the Fed looking at these numbers? What pressure are they feeling right now?

BRIAN CHEUNG: Yeah, well I actually had a note from Evercore ISI in my inbox earlier today that noted that the CPI quote doesn't change the Fed view much, but broad pressures persist. And a big reason for this was because the Fed had already been Warning ahead of this November report that we should expect to see inflationary pressures last, not only through the end of this year, but through the beginning of 2022 as well.

That's not to downplay how these numbers appear to keep going up. However, the Fed has already messaged that it wants to give itself the optionality to quell inflationary pressures if they last even deeper into 2022 by speeding up that taper process, maybe finish off quantitative easing in the first quarter of next year, which would allow the Fed to have on the table as an option. An interest rate hike as soon as the March, 2002 FOMC.

Now, of course, whether or not the Fed actually does so is another question. It's really going to depend on the labor market recovery and the inflationary prints to the beginning of next year. But of course, who's to say what the economy and the economic numbers will look like by that point in time.

- Who is to say indeed. Exactly. Brian Cheung, thank you so much.