Consumer prices fell 0.1% in December, in line with economists’ expectations

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Inflation ended 2022 with a modest pullback, with consumer prices in December posting their biggest monthly drop since the start of the pandemic, the Labor Department reported Thursday.

The consumer price index, which measures the cost of a wide range of goods and services, fell 0.1% this month, in line with the Dow Jones estimate. That matched the biggest monthly drop since April 2020 as much of the country was in lockdown to fight Covid.

Even with the decline, overall CPI was up 6.5% from a year ago, highlighting the ongoing burden that the rising cost of living is placing on US households. However, that was the smallest annual increase since October 2021.

Excluding volatile food and energy prices, so-called core CPI rose 0.3%, also meeting expectations. Core was up 5.7% from a year ago, again in line.

A sharp drop in gasoline prices accounted for most of the monthly decline. Prices at the pump fell 9.4% this month and are now 1.5% lower than a year ago, after rising above $5 a gallon in mid-2022.

Heating oil fell 16.6% this month, also contributing to an overall 4.5% drop in the energy index.

Food prices rose 0.3% in December, while shelter also surged again, rising 0.8% for the month and now 7.5% higher than a year ago. Lodging accounts for about a third of the total CPI index.

Used vehicle prices, also a major driver of inflation, fell 2.5% this month and are now down 8.8% year over year.

Markets reacted little to the news, with Dow Jones Industrial Average-linked futures rising modestly and government bond yields falling for most maturities.

Both annual increases remain well above the Federal Reserve’s 2% target, but have fallen progressively lower.

“Inflation is declining rapidly. Obviously it’s still painfully high, but it’s quickly moving in the right direction,” said Mark Zandi, Moody’s Analytics chief economist. “I see nothing but good news in the report except for the top-line figure: 6.5% is way too high.”

CPI is the most monitored inflation gauge because it accounts for movements in everything from a gallon of gasoline to a dozen eggs and the cost of airline tickets.

The Federal Reserve prefers a different measure that adjusts to changes in consumer behavior. However, the central bank takes in a wide range of information when measuring inflation, with CPI being part of the puzzle.

Markets are watching the Fed’s moves closely as officials battle against inflation, which was at its highest in 41 years. Supply chain bottlenecks, the war in Ukraine and trillions in fiscal and monetary stimulus contributed to rising prices that spread across most parts of the economy.

Policymakers are weighing how much further to go with rate hikes used to slow down the economy and curb inflation. The Fed has so far raised its benchmark lending rate by 4.25 percentage points to its highest level in 15 years. Officials have indicated that the rate will likely exceed 5% before they can take a step back to see the impact of the policy tightening.

This is the latest news. Check back here for updates.



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