December CPI report live: Price increases are higher, but show moderation

December CPI report live: Price increases are higher, but show moderation

Consumer price data released Thursday showed Federal Reserve officials, the White House and U.S. households that inflation continued to slow through the end of 2023, capping a year in which increases prices that tormented families and political decision-makers have seriously calmed down.

Overall, prices rose faster in December than in November on an annual basis: 3.4 percent versus 3.1 percent previously, more than economists in a Bloomberg survey had expected.

But after removing volatile food and fuel prices to get a sense of the underlying inflation trend, a measure of “core” prices climbed 3.9 percent over the year. until December, compared to 4 percent previously. This is the first time the benchmark index has fallen below 4% since May 2021.

The data highlights that while inflation remains faster than usual – and monthly increases are still likely due to fluctuating gasoline prices and other volatile costs – the measure is moving toward a normal pace . That should be good news for central bankers and President Biden after nearly three years of rapidly rising prices that have driven up costs for consumers and strained many household budgets.

“We’ve seen how spotty data can be,” said Gregory Daco, chief economist at EY-Parthenon. “The important momentum is really at the grassroots level, and what we’re seeing at the grassroots level on a three- or even six-month basis is really encouraging.”

Some underlying details could make Fed officials wary heading into 2024. The slowdown in rents for new leases is only gradually trickling down to the housing market as a whole. And even though the costs of some goods and services are falling significantly, the prices of products like car insurance continue to rise quite sharply.

But many economists expect inflation to continue to moderate in the coming months, as the expected slowdown in housing price increases materializes and the overall economy returns to a more normal pattern.

Whether this happens will determine the rest of the decisions of Fed policymakers.

Fed officials have raised rates significantly to slow economic growth and try to control inflation: Their main policy rate now sits between 5.25 and 5.5%, up from near zero at the start of 2022. But With inflation slowing, central bankers may begin to return interest rates to more normal levels this year.

Their task now consists of reconciling two objectives. On the one hand, they want to ensure that inflation is completely controlled. On the other hand, they don’t want to keep borrowing costs too high for too long, risking a recession that would cost jobs and increase unemployment.

Policymakers have indicated they could cut interest rates three times in 2024. They are not yet willing to completely rule out the possibility of another rate hike before reversing course, but investors and Many economists think their next move will be to cut rates. maybe as early as March.

For the Fed, Thursday’s report is a reminder to read carefully, said Oscar Munoz, chief U.S. macro strategist at TD Securities. He expects central bankers to wait until May to reduce borrowing costs, giving themselves more time to see that inflation is truly defeated.

“They need to be a little more patient,” Mr. Munoz said.

Fed officials themselves have in recent weeks pushed back on their expectations of an imminent rate cut.

“If we don’t maintain tight enough financial conditions, there is a risk that inflation will pick up and reverse the progress we’ve made,” said Lorie Logan, president of the Federal Reserve Bank of Dallas. in a speech January 6th.

For consumers, slowing inflation means the prices of many everyday purchases – from goods like furniture to services like rent – ​​are no longer rising as sharply. Some products are even seeing their prices drop, although for the most part price levels remain higher than they were a few years ago.

Wages are rising at a healthy pace, which should help consumers catch up. The average hourly wage was climb faster than the overall consumer price index since last summer, on an annual basis. In fact, since February 2020, consumer prices and average hourly wages have both been on the rise about the same amount.

As consumers gain traction, they also become slightly more optimistic. Several measures consumer confidence have improved recently, and although share of households those who say their financial situation is deteriorating increased compared to 2019, it has decreased in recent months.

And at the White House, moderating inflation – and improving American confidence – is a welcome development.

“We finished 2023 with inflation down almost two-thirds from its peak,” Mr. Biden said in a statement following the release. “Despite what many forecasters predicted a year ago, inflation is falling while growth and the job market have remained strong.”

Economists will now be watching the release of the Personal Consumption Expenditures Index, which the Fed officially targets when it says it aims for 2 percent annual inflation. The measure extracts some data from the Consumer Price Index, but is released with a longer delay and is scheduled for published January 26.

Omair Sharif, founder of Inflation Insights, said that because of the way the data is calculated, the continued slowdown will likely be particularly pronounced in this measure favored by the Fed.

And in the Consumer Price Index, he expects house prices to slow in the coming months – a key step in fighting inflation until the decline ends.

“I think we’re on the cusp” of long-awaited moderation in housing costs, he said, noting that a measure tracking residential rents declined in December. “Were very close.”

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David B.Otero

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