Consumer prices continued to rise, but at a slower pace in December, marking the sixth consecutive month of cooling inflation figures. A slowdown in the pace of inflation is good news after the Federal Reserve high interest rates to the highest level in more than a decade.
He Consumer’s price index (CPI) rose 6.5% in December from a year earlier. That’s the smallest increase in 12 months since the year ending October 2021, according to data published on Thursday by Bureau of Labor Statistics (BLS).
The year-on-year increase can be attributed to large annual jumps in the food (+10.4%), energy (+7.3%) and housing (+7.5%) indices.
The CPI fell 0.1% monthly in December after rising 0.1% in November.
“Prices have fallen since November, the first monthly decline since May 2020, a welcome sign for consumers,” said Lisa Sturtevant, chief economist at brilliant mlshe said in a statement. “The decline in inflation indicates that the Federal Reserve’s rate hikes are having the desired impact. The surprisingly stable job market, suggested by the recent strong jobs report, is providing further optimism that the Fed can achieve its desired soft landing.”
The gasoline index was by far the largest contributor to the month-over-month decline in the all-items index, with gasoline prices falling 9.4% from the prior month and 1. 5% compared to the previous year.
Thanks to gas index decline, the energy index fell 4.5% month-on-month after posting a 1.6% monthly decline in November. This decrease occurred despite month-over-month increases in electricity (+1.0%) and natural gas (+3.0%).
On an annual basis, the energy index rose 7.3% thanks to strong increases in the natural gas index (+19.3%), the electricity index (+14.3%) and the fuel oil index (+41.5). Overall, however, the increase in the energy index was less than in the year ending November 2022.
The index for all items except food and energy rose 0.3% in December and 5.7% year-on-year due to increases in the housing index.
month after month, the shelter index it rose 0.8%, with an increase of 0.8% in the rent index and 0.8% in the owner-equivalent rent index. Compared to a year ago, the housing index rose 7.5% in December.
“Despite the positive headline inflation report, housing costs continue to rise and will continue to put upward pressure on the headline price measure well into 2023,” Sturtevant said.
The 7.5% year-over-year increase in the housing index accounted for more than half of the total annual increase in the index for all items except food and energy. Other indices with notable increases in the last year include home furnishings and operation (+6.7%), health care (+4.0%), new vehicles (+5.9%), and recreation (+5.1% ).
Indices that increased month-over-month in December include housing (0.8%), furnishings and home operations (0.3%), motor vehicle insurance (0.6%), recreation (0.2%), and apparel (0.5%), while the indices for used cars and trucks (-2.5%) and airfares (-3.1%) were among those that decreased in the month.
Although inflation has slowed, Sturtevant believes the Fed’s rate hike plan will not be affected.
“Chairman Powell has repeatedly emphasized the priority of reducing inflation, even if it causes short-term economic problems,” he said. “Positive inflation and employment data will not interrupt the Fed’s rate-hike program, but it does offer hope that the Fed may be closer to achieving its price stability objectives and may slow rate hikes. With the inflation rate falling for five straight months, the Fed could pause rate hikes in the middle of the year. With less pressure on the Federal Reserve, it is likely that mortgage rates have peaked for the cycle and will now slowly begin to decline. Both buyers and sellers will begin to accept the “new normal” of the 2023 real estate market, which includes mortgage rates around 6%, and we should see more activity from both buyers and sellers as we head into spring.” .
