Citi Economist Signals Improving Inflation Outlook as December CPI Holds at 2.7%

This analysis is based on Rob Sockin’s appearance on CNBC’s “Closing Bell Overtime” [1] on January 13, 2026, coinciding with the release of the December 2025 Consumer Price Index report by the U.S. Bureau of Labor Statistics [6].

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The December 2025 CPI report revealed [2][3]:

Metric	Reading	Change
Headline CPI (YoY)	2.7%	Unchanged from November
Core CPI (YoY)	2.6%	Unchanged from November
Monthly CPI	+0.3%	In line with expectations

• Shelter:
  +0.4% monthly, remains primary inflation driver
• Food:
  +0.7% monthly, +3.1% YoY
• Gasoline:
  -0.5% monthly, -3.4% YoY (providing consumer relief)
• Natural Gas:
  +10.8% YoY (elevated)
• Electricity:
  +6.7% YoY

The Cleveland Fed’s inflation nowcasting data [5] projects Q1 2026 CPI at 1.79%, suggesting further moderation ahead.

Markets exhibited mixed performance on January 13, 2026 [0]:

Index	Close	Change
S&P 500	6,963.75	-0.20%
NASDAQ	23,709.87	-0.11%
Dow Jones	49,192.00	-0.86%
Russell 2000	2,633.10	-0.43%

reflects rate-cut expectations [0]:

• Outperformers:
  Real Estate (+1.61%), Energy (+0.83%), Consumer Defensive (+0.83%)
• Underperformers:
  Consumer Cyclical (-1.07%), Communication Services (-0.72%), Healthcare (-0.72%)

The 10-year Treasury yield rose to 4.20% [4], reflecting improved growth expectations alongside moderating inflation.

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Rob Sockin’s characterization that inflation is “coming in better than we would have expected” [1] reflects several factors:

1. Post-Shutdown Data Clarity:
   December provided cleaner readings after government shutdown distortions
2. Core Inflation Undershooting:
   The 2.6% core reading came in below some economist forecasts [3]
3. Sustained Disinflation Trend:
   Continued decline from September 2025’s 3.0% peak

The data informs the Federal Reserve’s January 28-29, 2026 meeting [2]. Markets are pricing increased likelihood of rate cuts in 2026, evidenced by real estate sector strength.

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• Shelter Persistence:
  0.4% monthly shelter increases could prevent timely return to 2.0% target
• Energy Volatility:
  Natural gas (+10.8%) and electricity (+6.7%) pressures remain
• Consumer Expectations:
  NY Fed survey shows consumers anticipate 3.4% near-term inflation [2]
• Policy Uncertainty:
  Potential trade, immigration, and fiscal policy changes could introduce new inflationary pressures

• Rate-Sensitive Sectors:
  Real estate and financials may benefit from Fed pivot expectations
• Consumer Defensive:
  Stable inflation environment supports defensive positioning
• Duration Extension:
  Bond portfolios may benefit if disinflation continues

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• December CPI: 2.7% YoY headline, 2.6% core—both unchanged from November
• Core inflation slightly below forecasts, characterized as encouraging by Citi economist
• Market sector rotation indicates expectations for accommodative Fed policy
• Cleveland Fed nowcast projects further moderation to 1.79% in Q1 2026

• January 2026 CPI (February 11, 2026 release) [6]
• FOMC communications post-January meeting
• Shelter cost trends and housing market data
• Consumer spending and retail sales figures

The December CPI represents constructive progress toward the Fed’s 2.0% target, though inflation remains elevated and warrants continued monitoring.