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Inflation data set for release Thursday will show whether months of cooling price increases continued in December.
Evidence of further slowing would ease the strain on household budgets and bolster hopes that the U.S. can avert a recession.
A sign that inflation turned upward, however, would indicate that the path to normal price levels may require prolonged interest rate hikes and significant job losses.
Year-over-year inflation has fallen for five consecutive months since it reached a peak of 9.1% in June. Despite the slowdown in price increases, inflation continues to hover near a 40-year high.
Analysts expect year-over-year inflation to continue its slide, dropping to 6.7% after standing at 7.1% in November.
The Federal Reserve imposed a string of aggressive rate hikes last year that aim to slow price increases by cooling the economy and choking off demand. The approach, however, risks tipping the U.S. into a recession and putting millions out of work.
A further slowdown in price increases would allow the Federal Reserve to taper off interest rate hikes, positioning the U.S. economy to avoid a severe downturn, Dana Peterson, chief economist at The Conference Board, .
