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Annual Inflation Slowed Again In December

David Krechevsky
Jan 12, 2023

CPI report shows YOY rate at 6.5%, down from 7.1% in November.

  • CPI fell 0.1% in December after rising 0.1% in November.
  • Year over year, CPI increased 6.5%, down from 7.1% YOY in November.
  • Core inflation rose 5.7% YOY, matching analysts expectations.

Inflation slowed in December, with the annual rate falling for the sixth consecutive month, but the trend may not be enough to convince the Federal Reserve to ease its inflation-fighting efforts.

The Consumer Price Index for All Urban Consumers declined 0.1% in December on a seasonally adjusted basis, after increasing 0.1% in November, the U.S. Bureau of Labor Statistics reported Thursday. 

Annual inflation, meanwhile, increased 6.5% before seasonal adjustment, the smallest 12-month increase since the period ending October 2021. The increase matched analysts expectations, and was down from 7.1% in November and 7.7% in October.

The index for gasoline was by far the largest contributor to the monthly decrease, falling 9.4% from November, more than offsetting increases in the shelter index, which increased 0.8% from a month earlier.

The food index increased 0.3% over the month, with the food at home index rising 0.2%. The energy index decreased 4.5% over the month as the gasoline index declined; other major energy component indexes increased over the month.

Indexes that increased in December include the shelter, household furnishings and operations, motor vehicle insurance, recreation, and apparel indexes. The indexes for used cars and trucks, and airline fares were among those that decreased over the month.

The index for all items less food and energy — considered the core inflation index — rose 0.3% in December, after rising 0.2% in November. On an annual basis, core inflation increased 5.7% in December, down from 6% in November and also matching f analysts’ expectations.

While it has fallen more than a point since October, the annual inflation rate remains nearly three times the Federal Reserve’s target rate of 2%. The Federal Open Market Committee (FOMC) increased the benchmark federal funds rate from zero at the start of 2022 to a range of 4.25% to 4.5% by year’s end. 

In a news conference held following the December FOMC meeting, at which the committee increased the federal funds rate by 50 basis points, Chairman Jerome Powell said the FOMC is particularly focused on the cost of services, which tends to be harder to control than the cost of goods.

Many economists are now focused on what they describe as “supercore inflation,” which excludes not only food and energy costs but also housing costs. 

The CPI report follows last week’s employment report, which showed the U.S. added 223,000 jobs in December, the 24th consecutive month of gains. The unemployment rate dipped to 3.5%.

The report also showed that hourly wages increased again, with the average rising by 9 cents, or 0.3%, to $32.82. Over the past 12 months, average hourly wages have risen by 4.6%. Still, wages grew slower than expected in December.

The FOMC is scheduled to meet again at the end of January.

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