Inflation slowed to 6.5% in December, Fed interest rate continues to rise

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US price growth cooled in December as the economy continued to show signs of weakening. Inflation landed at 6.5% compared to the previous 12 months.

That figure was in line with analysts’ expectations and a decline from the 7.1% seen in November. On a month-on-month basis, inflation fell by 0.1% in December, in line with expectations.

The slowdown in the inflation rate is likely to signal to the Fed that its interest rate hikes are working, but so far Chairman Jerome Powell has not indicated any near-term plans to significantly reduce those hikes until inflation approaches 2. %

The economy continues to be driven by a strong job market. Last week, the Bureau of Labor Statistics (BLS) reported that the unemployment rate had hit a 53-year low, falling to 3.5%, but the difficulty companies are experiencing in finding workers can still be seen. in the 10.5 million jobs. openings reported the BLS.

While that number has fallen from its post-pandemic highs, it is causing many employers to raise wages. That’s good news for workers, but some Federal Reserve officials say they think those wage increases are likely to translate into higher prices for customers.

“To be clear, strong wage growth is a good thing,” Federal Reserve Chairman Jerome Powell said at a conference in November. “But for wage growth to be sustainable, it needs to be consistent with 2 percent inflation,” Powell added.

Where in the US economy have prices fallen? In December, the cost of gasoline fell to levels last seen before the war in Ukraine began, to about $3.10 a gallon.

BLS data on Thursday showed a 9.4% monthly drop in gasoline prices in December.

An index tracking prices among small businesses has also halted its blistering pace of growth, though it remains well above pre-pandemic levels.

Prices for goods and services purchased online in December were 1.6% lower than a year earlier, the fourth consecutive month of annual price declines, according to data from Adobe Analytics. He said holiday discounts cut prices on appliances, electronics, toys, computers and sporting goods, while price increases cooled in categories such as personal care.

The cost of food has proven more stubborn, thanks in part to extreme weather events, bird flu and labor shortages that have hit the cost of food crops and grocery delivery.

BLS data on Thursday showed food prices advanced 0.3% m/m in December.

But on Wednesday, food giant Conagra, which makes the Healthy Choice, Birds Eye and Chef Boyardee brands, told Reuters plans to pause price increases on snack foods and frozen meals after the current quarter.

Bank of America economists say Thursday’s inflation report is unlikely to cause Fed officials to abandon their plan to aggressively slow the economy through interest rate hikes.

«While there are increasing signs that inflation has peaked, the Fed is concerned that the labor market is overheating,» the economists said in a report this week. «Our outlook for December [inflation] The report is unlikely to allay those concerns.»

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