U.S. Inflation Slowed for Sixth Straight Month in December
Consumer-price index rose 6.5% last month from a year earlier
Consumer-price index rose 6.5% last month from a year earlier
U.S. inflation eased in December for the sixth straight month following a mid-2022 peak as the Federal Reserve aggressively raised interest rates and the economy showed signs of cooling.
The consumer-price index, a measurement of what consumers pay for goods and services, rose 6.5% last month from a year earlier, down from 7.1% in November and well below a 9.1% peak in June.
Core CPI, which excludes volatile energy and food prices, climbed 5.7% in December from a year earlier, easing from a 6% gain in November. Many economists see increases in core CPI as a better signal of future inflation than the overall CPI. Core prices increased at a 3.1% annualised rate in the three months ended in December, the slowest pace in more than a year and down from 7.9% in June.
The figures added to signs that inflation is turning a corner following last year’s surge. They also likely keep the Fed on track to reduce the size of interest-rate increases to a quarter-percentage-point at their meeting that concludes on Feb. 1, down from a half-percentage point increase in December.
U.S. stocks climbed Thursday and investors bought U.S. Treasurys, lifting bond prices and weighing on yields. The S&P 500 added 0.3%, while the Dow Jones Industrial Average gained 0.6%, or 217 points. The technology-heavy Nasdaq Composite also rose 0.6%.
Easing inflation follows several signs that U.S. economic activity cooled in late 2022. U.S. imports and exports fell in November from October, while retail sales, manufacturing output and home sales all declined. Job and wage growth slowed in December, though the labor market remained tight with historically low claims for unemployment insurance at the start of the year.
“The December CPI report was welcome good news after a very bad patch for inflation,” said Bill Adams, chief economist at Comerica Bank. He said consumers are getting relief from lower gasoline prices and moderating food prices, as well as declining prices for other goods.
On a monthly basis, the CPI fell 0.1% in December, due to sharply falling energy prices. That compared with a gain of 0.1% in November and 0.4% in October. Food-price increases also slowed last month. Core CPI rose 0.3% in December, up from November’s 0.2% rise but down from 0.6% increases in August and September.
Goods prices, a key driver of inflation over the past year and a half, fell for the third straight month in December as prices fell for products such as autos, computers and sporting goods.
Improving supply chains and reduced demand have relieved price pressures on goods, but services prices continued to climb in part because of wage gains in a tight labour market.
Some economists worry that still-high wage growth could keep consumers flush with cash and companies eager to raise prices to compensate, holding inflation above the Fed’s 2% target.
“Taming services inflation will be the Fed’s biggest challenge this year,” said Ryan Sweet, chief U.S. economist at Oxford Economics.
Shelter prices rose 7.5% in December from a year earlier, the Labor Department said, and a broader measure of services prices that excludes utilities rose 7% during the same period. Both increases were the biggest since 1982.
Daycare and preschool prices rose 5.4% in December from a year earlier, the biggest increase since 2006, while those for home-health care increased 6.1% in the same period. Hospital services prices, meanwhile, jumped 1.5% in December from the prior month, the sharpest monthly increase since 2015.
Inflation remained high across the globe in November, though it abated during the month, the Organization for Economic Cooperation and Development said Tuesday. Consumer prices across the Group of 20 largest economies—which contribute four-fifths of economic output worldwide—rose 9% from a year earlier in November, down from October’s 9.5% increase, the first drop in the G-20 inflation rate since August 2021.
Prices rose sharply in 2021 as the U.S. economy rebounded from the Covid-19 pandemic, powered by pent-up consumer spending that got a boost from low interest rates and government stimulus. Snarled supply chains fueled higher prices for many goods. Russia’s invasion of Ukraine in early 2022 also tightened supplies of energy and other commodities, further stoking inflation worldwide.
Inflation pressures on goods dissipated last summer as supply chains improved and energy prices fell. Shipping costs from China to the West Coast are near pre pandemic levels. Gasoline prices have declined, with the national average price of regular unleaded gasoline at $3.27 a gallon on Thursday, down about 50 cents a gallon from mid-November, according to OPIS, an energy-data and analytics provider. Gasoline prices peaked in mid-June at a record $5.02 a gallon.
“Logistics prices have also slowed materially, shipping costs are back to where they were pre-Covid,” said Jake Oubina, senior economist at Piper Sandler. “The alleviation on the cost side is creating the wherewithal to discount more aggressively as we head into 2023.”
The clearest impact of Fed tightening so far is in the housing market. Existing-home sales fell in November for a 10th straight month as high mortgage rates boosted buyers’ costs.
Ian Snowden, a 33-year-old tech salesman, said the shift to remote work after the pandemic hit allowed him to move to Asheville, N.C., where he has easy access to hiking, fishing and other outdoor activities.
The move proved expensive, though. After losing out to cash buyers in bids for existing homes, Mr. Snowden signed a contract in September 2021 to buy a newly constructed property. By the time his home was completed the following June, mortgage rates had doubled. On top of that, the construction company told him that he was on the hook for an extra $25,000 to offset unexpectedly high costs for concrete, labor and other items—or he could back out of the contract.
At that point, Mr. Snowden said, he was already selling his old house and had made plans to move, so he wasn’t going to back out. “So much was already in motion,” he said. Between the higher mortgage rates and the additional costs, the monthly mortgage payment increased $200, he said.
—Austen Hufford contributed to this article.
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CommSec research reveals this state is leading the country in economic growth, unemployment, construction and dwelling starts
South Australia is currently the strongest state or territory economy in the country, with economic activity 9.1 percent above its decade-average in the December quarter, according to CommSec research. NSW was second with economic output running 8.6 percent above its long-run average, followed by Victoria with 8.5 percent, the ACT at 8.3 percent and Western Australia at 6 percent.
Economic activity in both Queensland and Tasmania was 4.5 percent above average while the Northern Territory underperformed its long-term average by 0.5 percent.
The CommSec research ranks states and territories on several key economic metrics and compares the latest quarterly data with each area’s decade average. South Australia ranks first on four of the eight key indicators. They are economic growth, unemployment, construction and dwelling starts.
Western Australia ranks first on population growth and business and equipment investment. Population growth has been a key element in Perth and regional Western Australia becomingthe country’s hottest property markets over the past 12 months. CoreLogic figures released this week show home values are up 21.1 percent in Perth and 13.3 percent in the state’s regions.
Despite high inflation, retail spending remained above the long-term average in all states and territories in the December quarter. The ACT led with retail expenditure 12.2 percent higher than its long-term average, followed by Western Australia with 11.3 percent, Victoria at 11.2percent and Queensland at 11.1 percent.
Queensland is in the top spot for new home loans. Propelling this is very strong internal migration and a doubling of the First Home Owners Grant to $30,000 from 20 November last year. New home loans issued to first home buyers in November surged to a 15-month high, according to data from the Australian Bureau of Statistics. Queensland is currently the second strongest housing market, with home values up 16.1 percent in Brisbane and 11.2 percent in regional areas over the past year.
In all states and territories except the Northern Territory, housing finance commitments remained above decade averages in the December quarter. The value of home loans in Queensland was 21.1 percent higher than the state’s long-term average. The next strongest was Western Australia, up 17.5 percent, South Australia, up 14.2 percent, and the ACT, up 12 percent. The new CoreLogic data reveals 15 consecutive months of growth in the national median price, despite high interest rates.
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