Consumer Price Index inflation moderated to 6.5 percent in December, helping Fed officials to lean toward slower rate moves.
Inflation slowed on an annual basis for a sixth straight month in December, a relief for households and an encouraging signal for the Federal Reserve and the White House that the worst of America’s pandemic-induced inflation burst may be in the past.
The Consumer Price Index climbed 6.5 percent in the year through last month, down from 7.1 percent in the November reading, as prices declined on a monthly basis for the first time in more than two years. The annual inflation rate was the slowest since October 2021, a pullback driven by falling gas prices and cheaper airfares.
Economists and Fed officials are more acutely focused on a so-called core inflation measure, which removes food and fuel prices to get a sense of underlying price trends. That measure ticked up on a monthly basis, but the yearly measure slowed to 5.7 percent in December from 6 percent previously.
President Biden greeted the report enthusiastically, emphasizing the role that his policies — including efforts to lower the cost of gas — have played in helping prices to climb more slowly. In remarks from the White House on Thursday, Mr. Biden said that moderating inflation “adds up to a real break for consumers, real breathing room for families and more proof that my economic plan is working.”
For the Fed, the report confirms that the slowdown in price gains that officials have long expected is finally coming to fruition. That could help policymakers, who have begun slowing the pace of interest rate increases, feel comfortable moving even more incrementally.
Fed officials adjusted their policy at the fastest pace in decades last year to try to wrangle rapid inflation, but with rates at a higher level and inflation showing early signs of slowing, they shifted to a half-point adjustment in December following a string of three-quarter point rate moves. Now, policymakers have made it clear that they are contemplating an even more modest quarter-point change in February.
The fresh inflation data probably bolsters the case for that gentler path, which will give officials more time to see how their policies are playing out in the economy and how much more is needed.
“I expect that we will raise rates a few more times this year, though, to my mind, the days of us raising them 75 basis points at a time have surely passed,” Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, said in a speech on Thursday.
