U.S. Inflation Slowed for Sixth Straight Month in December
Consumer-price index rose 6.5% last month from a year earlier
4 min
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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As housing drives wealth and policy debate, the real risk is an economy hooked on growth without productivity to sustain it.
As housing drives wealth and policy debate, the real risk is an economy hooked on growth without productivity to sustain it.
3 minFor decades, Australia has leaned into its reputation as the lucky country. But luck, as it turns out, is not an economic strategy.
What once looked like resilience now appears increasingly fragile. Beneath the surface of rising property values and steady headline growth, the Australian economy is showing signs of strain that can no longer be ignored.
Recent data paints a sobering picture. Australia has recorded one of the largest declines in real household disposable income per capita among advanced economies.
Wages have failed to keep pace with inflation, meaning many Australians are working harder for less. On a per capita basis, income growth has stalled and, at times, reversed.
And yet, on paper, things still look relatively solid. GDP is growing. Unemployment remains low. But that growth is increasingly being driven by population expansion rather than productivity.
More people are contributing to output, but not necessarily improving living standards.
That distinction matters.
For years, Australia’s economic success rested on a powerful combination: a once-in-a-generation mining boom, a credit-fuelled housing market, strong migration and a property sector that rarely faltered. Between 1991 and 2020, the country avoided recession entirely, building enormous wealth in the process.
But much of that wealth is tied to property. Around two-thirds of household wealth sits in real estate, inflated by leverage and sustained by demand. It has worked, until now.
The problem is the supply side of the economy has not kept up.
Housing supply is falling behind population growth. Rental vacancies are near record lows.
Construction firms are collapsing at an elevated rate. At the same time, massive infrastructure pipelines are competing with residential projects for labour and materials, pushing costs higher and delaying delivery.
The result is a system under pressure from all angles.
Despite near full employment, productivity growth has stagnated for years. In simple terms, Australians are putting in more hours without generating more output per hour. The economy is running faster, butgoing nowhere.
Meanwhile, government spending continues to expand. Public debt is approaching $1 trillion, with spending now accounting for a record share of GDP.
The gap between spending and revenue has been filled by borrowing for decades, adding further pressure to an already stretched system.
This is where the uncomfortable question emerges.
Has Australia become too reliant on a model driven by rising property values, expanding credit and population growth?
As asset prices rise, households feel wealthier and borrow more. Banks lend more. Governments collect more revenue. Migration fuels demand. The cycle reinforces itself.
But when productivity stalls and debt outpaces real income, the system begins to depend on constant expansion just to stay stable.
It is not a collapse scenario. But it is not particularly stable either.
Nowhere is this more evident than in housing.
The National Housing Accord targets 1.2 million new homes over five years, yet current completion rates are well below that pace. With approvals falling and construction costs rising, the gap between supply and demand is widening, not narrowing.
Housing is also one of the largest contributors to inflation, with costs rising sharply across rents, construction and utilities. Yet the private sector, from small investors to major developers, is struggling to make projects stack up in the current environment.
This brings the policy debate into sharper focus.
Tax settings such as negative gearing and capital gains concessions have undoubtedly boosted demand over the past two decades. But they have also supported supply. Removing them may ease prices briefly, but risks deepening the supply shortage over time.
That is the paradox.
Policies designed to make housing more affordable can, in practice, make the shortage worse if they discourage development. The optics may appeal, but the economics are far less forgiving.
It is also worth remembering that most property investors are not institutional players. The majority own just one investment property. They are, in many cases, ordinary Australians using real estate as their primary wealth-building tool.
Undermining that system without replacing it with a viable alternative risks unintended consequences, from reduced supply to higher rents and increased inflation.
So where does that leave Australia?
At a crossroads.
The country can continue to rely on population growth and rising asset prices to drive economic activity. Or it can shift towards a model built on productivity, innovation and sustainable growth.
The latter is harder. It requires structural reform, long-term thinking and political discipline.
But it is also the only path that leads to genuine, lasting prosperity.
The question is no longer whether Australia has been lucky.
It is whether it can evolve before that luck runs out.
Paul Miron is the Co-Founder & Fund Manager of Msquared Capital.
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