Inflation Rate Trended Down Slightly in December 2022
The U.S. Bureau of Labor Statistics reported that the consumer price index (CPI) rose 6.5% year over year in December 2022, down from 7.1% in November. Moderating inflation is a welcome relief for Americans and a positive development for the Federal Reserve (Fed) and other policymakers; however, the fight against inflation isn’t over.
The gasoline index (-9.4%) was the largest contributor, more than offsetting the increase in shelter indexes (0.8%). To better understand underlying price trends, the Fed is more focused on a “core inflation measure.”
Extended soaring inflation is taking a toll on American workers as they try to keep up with rising costs. Along with the impact on emergency savings and mental health, workers’ pay is stretched thin as they pay more for gas, groceries and other everyday expenses. A Willis Towers Watson survey revealed that U.S. employers plan to boost salaries an average of 4.6% in 2023, up from 4.2% in 2022. Although employers plan to increase salaries more than usual, pay hikes lag behind cost-of-living rates, so they’re likely not enough to support workers.
“A mostly favorable December CPI report gives the Fed room to further downshift the pace of rate hikes to 25 basis points at the Jan. 31-Feb. 1 meeting. We expect the Fed funds rate to peak at 5% in March and stay at that level for the rest of the year.”
- Anna Wong, Bloomberg economist
What’s Next?
Despite the slowdown seen in December’s CPI, the inflation rate remains significantly above its multiyear average and above the Fed’s target rate of 2%. The Fed is expected to raise interest rates to further limit inflation’s impact.
It remains to be seen how quickly inflation will return to normal after a year and a half of unusually rapid increases. A full deceleration could likely be a long process. Individuals should continue to monitor the economy and associated inflation trends, adjusting their financial habits accordingly.
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