Inflation Clocks in at 6.5% in December

December saw inflation continue to fall, the latest sign that the grip of high consumer prices is finally being released. U.S. economy. 

Thursday’s Labor Department report showed that the consumer price index (a broad measure of prices for everyday goods like gasoline and groceries) fell 0.1% from December last year. The annual price increase was 6.5%. 

These figures were in line with Refinitiv economists’ forecasts. This could give rise to the Federal Reserve This is a reason for policymakers to slow down its aggressive interest rate rise campaign next month. 

At the height of COVID-19 lockdowns, it was the slowest annual and monthly inflation rates since October 2021. Despite this, inflation is still three times higher that the pre-pandemic average. This demonstrates the financial burden on millions of American households due to high prices. 

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Core prices – which strip out the more volatile measurements of food and energy – climbed 0.3% in December from the previous month, up from 0.2% in November. Core prices increased 5.7% compared to the same period last year. These numbers were also in line of economists’ expectations. 

Stocks rose after the report revealed a drop in prices last month. The Dow Jones Industrial Average climbed 146 points. S&P futures gained 0.5% while Nasdaq Futures rose 0.6%.

“Today’s CPI reading is another sign that inflation is heading in the right direction and indicates the peak is likely in the rear view,” Mike Loewengart from Morgan Stanley Global Investment Office is in charge of the model portfolio construction. “But we aren’t out of the woods yet, as it is still well-above the Fed’s target rate and the Fed has remained adamant that they will keep rates high to bring inflation back to normal levels.”

Inflation has caused severe financial pressures in the United States, with many households having to pay more for basic necessities such as food and rent. Low-income Americans are most affected by price fluctuations, which disproportionately increases their burden. 

Americans enjoyed a real reprieve in December thanks to lower energy prices, which dropped 6.1% in December. The biggest driver of December’s overall inflation decline was 12.5% drop in gas prices. Also, the cost of used cars and airline tickets fell.

On October 14, 2022 in Atlanta, shoppers are seen at a Kroger supermarket. (Elijah Nouvelage/AFP via / Getty Images)

Other price gains were stubbornly high in November. Groceries prices rose 0.3% to 11.8%, making the 12-month average increase. Consumers paid more for products such as eggs, cereal, butter, and fresh vegetables including tomatoes, potatoes, lettuce, and butter.

Shelter costs, which are responsible for 40% of core inflation, increased 0.7% in the month, and have increased 7.5% over the last year.

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Rent costs rose 0.8% in the last month, and 8.3% over the past year. Rising rents is a worrying development as higher housing costs directly and severely impact household budgets. Another indicator that shows how much homeowners would have to pay in equivalent rent if their home was not purchased, has risen 0.8% over the previous month. 

Jerome Powell, Chair of the US Federal Reserve, speaks at a news conference about interest rates, the economy, and monetary policy action, held at the Federal Reserve Building, Washington, DC, June 15, 2022. (Photo by OLIVIER DOUULIERY/AFP via Getty Images / Getty Images

U.S. households are under increasing financial pressure due to rising food and shelter prices. On an inflation-adjusted basis, December’s average hourly earnings fell 1.7% from the previous years. For the first time in many months, inflation did not affect Americans’ wages. A separate BLS report found that earnings rose 0.4% between November-December, when you take into account the 0.1% decrease in consumer prices.

The implications of the report will be significant for the Federal ReserveThe, which took drastic measures to curb runaway inflation. Officials from the central bank approved seven consecutive interest rate increases in 2022, and indicated that they still have a lot of work to do. 

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Economists believe that the December inflation decline could lead to lower rate hikes in February or March. The central bank will then pause any increases until it assesses the economic impact of tighter monetary policy.

“The ongoing slowing in inflation provides the Federal Reserve room and reason to pare the size of its policy rate increases to 25bps,” Kathy Bostjancic is Nationwide’s chief economist. “While it shows that the monetary policy tightening so far has been successful, with the annual rate of headline and core readings well above the 2% target level, the Fed is not done tightening.”

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