The softer readings add to growing signs that the worst inflation bout in four decades is steadily waning.
Rising U.S. consumer prices moderated again last month, bolstering hopes that inflation’s grip on the economy will continue to ease this year and possibly require less drastic action by the Federal Reserve to control it.
Inflation declined to 6.5% in December compared with a year earlier, the government said Thursday. It was the sixth straight year-over-year slowdown, down from 7.1% in November. On a monthly basis, prices actually slipped 0.1% from November to December, the first such drop since May 2020.
The softer readings add to growing signs that the worst inflation bout in four decades is steadily waning. Gas prices, which have tumbled, are likely to keep lowering overall inflation in the coming months. Supply chain snarls have largely unraveled, which is helping reduce the cost of goods ranging from cars and shoes to furniture and sporting goods.
December’s lower inflation reading makes it likelier that the Fed will slow its interest rate hikes in the coming months. The Fed may raise its benchmark rate by just a quarter-point at its next meeting, which ends Feb. 1, after a half-point increase in December and four three-quarter point increases before that.
Fed officials have signaled that they intend to boost their key rate above 5%, a move that would likely keep mortgage rates high, along with the costs of auto loans and business borrowing. The Fed’s higher rates are intended to slow spending, cool the economy and curb inflation.
If inflation continues to ease, the Fed could suspend its rate hikes after that, some economists forecast, or implement just one more hike in March and then pause.
“If the actual inflation is trending downward, the Fed can take more comfort that it’s landed the economy in a good place,” said Daleep Singh, chief global economist at PGIM Fixed Income and a former Fed staffer.
