© Feng Yu | Dreamstime.com
Dreamstime Xxl 135385678

US Inflation Hits Slowest Pace in Over a Year Amid Hopes of Less Hawkish Fed

Jan. 12, 2023
Government data showed the consumer price index dipped 0.1% between November and December.

Consumer inflation in the United States slipped in December to the lowest level in over a year, government data showed on Thursday, signaling the worst of red-hot price increases may be over.

As American households struggled with decades-high inflation in the last year, the Federal Reserve hiked its benchmark lending rate at a pace unheard of since the 1980s, in hopes of cooling the world's biggest economy.

The downward trend marks the sixth consecutive month of easing, and could fuel hope for some reprieve from steeply rising interest rates.

The consumer price index (CPI) last month rose 6.5% from a year ago, the smallest increase since October 2021, said the Labor Department.

The annual figure is also down from November's 7.1% spike.

"The index for gasoline was by far the largest contributor to the monthly all items decrease," said the department.

This more than offset increases in the shelter component, with elevated rents still boosting consumer costs.

The data point could add to signs that the worst of surging prices may be over.

Between November and December, CPI dipped 0.1%, the first time in around two years it logged a month-on-month contraction, government data showed.

- 'Encouraging' trend -

"The trend is an encouraging one," Moody's Analytics economist Matt Colyar told AFP, noting that figures have come down from a recent peak.

But Rubeela Farooqi of High Frequency Economics warned that "rates of change remain well above levels Fed officials are comfortable with."

U.S. consumer inflation climbed rapidly to a blistering 9.1% last June, a 40-year high, as the war in Ukraine sent global food and energy costs rocketing.

While inflation has eased, it remains a far cry from the Fed's two-percent target.

Prices at the pump -- a key symbol for U.S. consumers -- dropped last month on lower global demand and falling oil prices, in welcome news to policymakers.

While the food index picked up month-on-month, the pace has slowed as well.

But components that increased in December include shelter, household furnishings and motor vehicle insurance.

Stripping out the volatile food and energy segments, the "core" CPI index rose 0.3% from a month prior, in line with expectations.

This was a slight pick-up from November's 0.2% reading, signaling that the inflation battle is not yet over.

Colyar of Moody's Analytics said although motor fuel prices have fallen, policymakers cannot rely on this alone in the longer-term.

For now, the Fed is keeping a close eye on the labor market and the pace of wage growth, as rapidly rising earnings could provoke a continued increase in the costs of services.

Fed Chair Jerome Powell cautioned Tuesday that "restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy."

The Fed's moves aim to raise the costs of borrowing, lowering demand by making it more expensive to get funds for big-ticket purchases or to expand businesses.

Fed governor Michelle Bowman added in a separate address that despite a decline in some indicators, "we have a lot more work to do."

In December, the Fed's policy-setting Federal Open Market Committee said it expected "ongoing increases" in the target range of rates.

Minutes from the committee's latest meeting also suggested there would not be rate cuts this year.

"I expect that once we achieve a sufficiently restrictive federal funds rate, it will need to remain at that level for some time," said Bowman.

Copyright 2023, Agence France-Presse

Popular Sponsored Recommendations

Process Mining For Dummies

Nov. 19, 2023
Here it is. Everything you need to know about process mining in a single book, written in the easy-to-understand, hard-to-forget style that ‘For Dummies’ manages so effortlessly...

How to Build Zero-Cost On-Site Solar and Storage Projects

Nov. 25, 2023
The Inflation Reduction Act offers tax credits, incentives, and financing that enable no-cost projects. In Enel’s eBook, discover the critical role that incentives play in your...

Discover How an Eye Tracking Study Improves Training Procedures

Oct. 29, 2023
Did you know that your training processes can be streamlined by visualizing and analyzing key skills within your employee base? Find out how we use eye tracking to capture advanced...

Discrete and Process Manufacturing 2024 Trends and Outlook for North America

Oct. 29, 2023
Manufacturers are reaping the benefits of automation and cloud-based solutions. Discover what is driving today's industry trends and how they can shape your growth priorities ...

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!