In December 2021, the price for US goods increased by an average of 6.5% over a year prior, according to the latest Consumer Price Index (CPI) report from the US Bureau of Labor Statistics (BLS). The news marks six straight months of declining inflation for the US, after the Federal Reserve began increasing interest rates.
The 6.5% increase, while still historically high, was noticeably less than the 7.1% increase seen in December, and the sixth consecutive month of decrease since the high of 9.1% in June of last year.
"Inflation is on its back heels,” tweeted Mark Zandi, the chief economist at Moody’s Analytics. “Consumer price inflation for December couldn’t have been much better.”
The Board of Governors of the Federal Reserve, the US’ central bank, is set to meet next on January 31, and despite the continuing good news on the inflation front, is likely to continue increasing interest rates to ensure the decline continues. The Effective Federal Funds Rate, which governs how much banks can lend to each other overnight, was increased to 4.33% last month, and the Fed has indicated it expects that number to increase above 5% before letting off the gas pedal. The Fed’s target inflation rate is 2.5%.
Speaking of gas, the sharply declining price of gasoline is largely credited with helping slow the increase in commodity prices, as higher gas prices create higher transportation costs. According to the American Automobile Association (AAA), during the week of January 12, the average price for a gallon of regular unleaded gas in the US was $3.27, down considerably from the June 2022 peak of $5.01 per gallon.
Still, the prices of some commodities have persisted in their rise, especially food items such as eggs. Over the last year, the price of eggs has increased by 60%, rising by 11.1% just from November to December 2022, according to the BLS. Breakfast cereal, rice, and bread have also risen by 13-15%. Rent is also 8.3% higher than last year - a devastating metric for working-class Americans, for whom rent is often their single largest expense.
Meanwhile, the price of a used car has continued to drop, as have airfares, although the price of a new car has continued to rise.
However, the Fed’s steady rate hikes and the US economy’s effective “burnout” over the summer have left many economists and Wall Street investors with dismal expectations for 2023, including anticipating a recession. However, unemployment has remained extremely low - the BLS’ jobs report released last week showed a slight decrease to 3.5% of the workforce - and rising unemployment is often considered a telltale sign of the slide toward recession.
“I’m increasingly confident that inflation will get back to target over the next 18 months with only a couple more Fed rate hikes and no recession,” Zandi also said. “The next meaningful drop in inflation will come from falling vehicle prices as supply chains and global vehicle production normalize.”