Get Ready For The Worst Inflation Number In 6 Years

The crash in oil prices might be good for consumers, but it's terrible for inflation data.

On Friday morning, the BLS is set to release the consumer price index on Friday morning at 8:30 am ET, a measure of consumer prices and the most popularly cited inflation measure.

Expectations are for headline inflation to fall 0.4% in December compared to the prior month, which would be the largest month-on-month decline since December 2008. Compared to last year, headline inflation is set to rise 0.7%.

"Core" inflation, which strips out the cost of food and energy and is the number more closely watched by economists, is expected to rise 0.1% in December and 1.7% when compared to last year.

Most of this decline in inflation is expected to be a result of the decline in oil prices, which has in turn sent gas prices to multi-year lows.

In a note to clients ahead of the report, Brian Jones at Societe Generale wrote that, "Reflecting a projected 12.1% dive in seasonally adjusted gasoline pump prices, the CPI energy cost gauge likely fell by 5.4%, shaving one-half percentage point off the headline measure last month."

And so more than all of the decline in consumer prices will come from gas, which is stripped out of the "core" reading. The "core" number is what economists and policy makers focus on.

Jones added that, "Markedly lower gasoline pump prices are expected to exert significant downward pressure on headline consumer price measures over the course of the winter quarter." So it's unlikely that this is the last time we see headline inflation fall, and even larger month-on-month declines could follow.

The Federal Reserve is currently targeting 2% inflation - "core" inflation, that is, on a year-over-year basis - but prices have been below this level for some time now. The Fed has said, however, that given the labor market's improvement over the last year, it would be comfortable raising interest rates with inflation running near current levels.

And so expect Friday's inflation data to be eye-catching, but it is likely that it will not change the Fed's policy outlook or its overall view of the economy.