Inflation has come down substantially for a third month in December by tumbling gasoline prices and a moderate increase in grocery bills offset another increase in rents.
Consumer prices rose 6.5% from a year earlier, down from 7.1% in November and a 40-year high of 9.1% in June, according to the Consumer Price Index from the Department of Labor, a measure of what people pay for goods and services, what job released thursday.
Last month’s rise marks the slowest annual gain since October 2021 and matches economists’ estimates.
Consumer price index month over month
On a monthly basis, consumer prices fell 0.1%, the first drop since May 2020.
What does the heart of the index mean?
Core prices, which exclude volatile food and energy products and better reflect longer-term trends, rose 0.3% from November, after rising 0.2% the previous month. This reduced the annual increase from 6% to 5.7% – the smallest increase in a year.
“This month’s report confirms that declining inflationary pressures are taking root,” Morgan Stanley wrote in a note to clients.
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Historical inflation rates
Americans have a hard time with a historic inflation peak Since the spring of 2021, the easing of the pandemic has fueled consumer demand, even as supply chain bottlenecks have resulted in product shortages. The surge has led the Federal Reserve to aggressively raise interest rates to curb inflation in a campaign that threatens to tip the country into recession this year.
But price increases have eased in recent months.
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Where inflation slows down
Generally, prices for goods such as used cars and furniture have fallen or stabilized as COVID-19-induced supply chain issues have improved and demand has declined. . But the cost of services has risen as more Americans return to travel and other pursuits, even as ongoing labor shortages drive up wages.
Fed Chairman Jerome Powell said the Fed would not be convinced that inflation is slowing sustainably – which would allow it to suspend interest rate hikes – until wage increases in service industries are slowing down.
Still, the central bank is moving more cautiously. Markets expect the Fed to return to a quarter-point rate hike early next month after a half-point hike in December.
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Inflation has now declined since July, but the decline has accelerated over the past three months. And price increases are expected to continue to slow significantly in 2023. Barclays expects annual inflation to reach 2.6% by the end of the year, slightly above the 2% target from the Fed.
S&P500
Major stock indexes rose slightly on Thursday after the inflation report. The S&P 500, the broadest gauge in the market, gained 5 points, or less than 1%. The Dow Jones Industrial Average rose 301 points, a similar percentage gain. Stocks rose this week on expectations that the consumer price index would continue to accumulate after November’s decline.
Why are gas prices falling so fast?
In December, gasoline prices fell for the fifth time in six months amid growing concerns about a global recession and falling demand for oil. Prices at the pump fell by 9.4%. Nationally, regular unleaded gasoline averaged $3.27 a gallon on Wednesday, down from about $5 in June, according to AAA.
“It helps,” said Cheryl Stewart, of Perry Hall, Maryland, of the recent decline. “It definitely frees up money for something else.”
Stewart says the savings allowed her to resume her morning ritual of stopping for coffee at Dunkin Donuts or Starbucks on her way to work.
But she says grocery prices are still too high. “I’m shocked when I see the price of a dozen eggs over $4,” Stewart says.
So she stopped buying eggs and chicken wings. Wing prices have also skyrocketed.
To better cope with high food costs, Stewart, a public relations officer at a university, took on part-time freelance work 15 hours a week, which allowed her and her family to travel more.
Egg prices
Grocery prices continue to rise, but more slowly, rising 0.2% from November and 11.8% over the past year. The cost of raw materials such as wheat and corn has fallen in recent months due to easing global demand.
In December, egg prices jumped 11.1% and were up nearly 60% from a year ago as avian flu continued to cut chicken supplies. Breakfast cereal prices were up 1.1% and 13% from a year ago. Rice grew by 0.5% and 15.4% per year. And bread rose slightly by 0.2% and was 15.9% more expensive than a year earlier.
But some food costs that had soared have receded. Bacon slipped 2.9%; chicken, 0.6%; fresh fish and seafood, 1%; and uncooked ground beef, 0.1%, the latest in a series of declines.
Some other costs continued to climb. Rents have jumped 0.8% per month and 8.3% over the past year. Economists expect rents to fall, based on new leases, but not before the end of this year. Auto repair prices have increased by 1% and 13% per year. And the price of a haircut has increased by 0.3% and 6.3% compared to a year ago.
Clothing prices, which had fallen or stabilized as supply issues eased, rose 0.5%. Furniture costs were stable.
Meanwhile, used car prices fell 2.5%, the sixth consecutive monthly decline and are now down 8.8% annually after rising sharply at the start of the pandemic. Airfares decreased by 3.1%.
Initial jobless claims
Among other positive economic news, unemployment benefit claims fell to their lowest level in 15 weeks as the labor market continues to show resilience in the face of attempts by the Fed to cool the economy.
The number of Americans applying for unemployment assistance for the week ending January 1. 7 fell from 1,000 to 205,000, the Labor Department said Thursday.
Unemployment claims are generally seen as a proxy for layoffs, which have been relatively weak since the pandemic shed millions of jobs in the spring of 2020.
The labor market is being closely watched by Fed policymakers, who raised interest rates seven times last year in an effort to slow job growth and bring down stubbornly high inflation.
Contribute: The Associated Press
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