Higher energy and housing prices boosted overall U.S. inflation in December, a sign that the Federal Reserve’s drive to slow inflation to its 2% target will likely remain a bumpy one.
Higher energy and housing prices boosted overall U.S. inflation in December, a sign that the Federal Reserve’s drive to slow inflation to its 2% target will likely remain a bumpy one.
Thursday’s report from the Labor Department showed that overall prices rose 0.3% from November and 3.4% from 12 months earlier. Excluding food and fuel, the rate was even higher. The big reason was housing, with the price people pay for shelter accounting for half of the overall increase.
“This news is a setback for expectations that the Fed will soon cut interest rates,” said economist Dr. Mike Walden. Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina
State University.
“Although there has been progress in moderating the inflation rate, the Fed’s goal of a 2 percent inflation rate is now farther away. I expect Fed rate cuts in 2024, but they will occur in the second half of the year,” he said.
Energy costs, led by electricity and gasoline, along with food prices, also contributed to the increase.
Excluding volatile food and energy costs, though, so-called core prices rose just 0.3% month over month, unchanged from November’s increase. Core prices were up 3.9% from a year earlier — the mildest such pace since May 2021 and down from November’s 4% year-over year gain. Economists pay particular attention to core prices because, by excluding costs that typically jump around from month to month, they are seen as a better guide to the likely path of inflation.
