US Inflation Cools Again, Putting Fed on Track to Downshift
US inflation continued to slow in December, adding to evidence price pressures have peaked and putting the Federal Reserve on track to again slow the pace of interest-rate hikes.
The overall consumer price index fell 0.1% from the prior month, with cheaper energy costs fueling the first decline in 2 1/2 years, according to a Labor Department report Thursday. The measure was up 6.5% from a year earlier, the lowest since October 2021.
Excluding food and energy, the so-called core CPI rose 0.3% last month and was up 5.7% from a year earlier, the slowest pace since December 2021. Economists see the gauge — known as the core CPI — as a better indicator of underlying inflation than the headline measure.
The data, when paired with prior months’ lower-than-expected readings, point to more consistent signs that inflation is easing and may pave the way for the Fed to downshift to a quarter-point hike at their next meeting ending Feb. 1. That said, the central bank’s work is far from over.
Resilient consumer demand, particularly for services, paired with a tight labor market threaten to keep upward pressure on prices.
The Fed is expected to raise interest rates further before pausing to assess how the most aggressive tightening cycle in decades is impacting the economy. Policymakers have emphasized the need to hold rates at an elevated level for quite some time and cautioned against underestimating their will to do so. Investors are still betting the central bank will cut rates by year end, despite officials saying otherwise.