By Gwynn Guilford
U.S. inflation slowed to 6.5% in December, marking the sixth straight monthly deceleration since a mid-2022 peak
The department's consumer-price index, a closely watched measure of inflation, rose 7.1% in November from a year earlier, it said last month. That marked the fifth straight month of a decline in the annual inflation rate from a 9.1% peak in June. Despite the recent easing of price pressures, the November rate was much faster than the 2.1% average in the three years before the pandemic.
The CPI measures what consumers pay for goods and services. The Labor Department is scheduled to release its December report at 8:30 a.m. ET on Thursday.
Core CPI, which excludes volatile energy and food prices, climbed 6% in November from a year before, easing from a 6.3% gain in October. Many economists see increases in core CPI as a better signal of future inflation than the overall CPI. Core prices increased at a 4.3% annualized rate in the three months ended in November, the slowest pace in more than a year.
The Federal Reserve increased interest rates aggressively in 2022 in an effort to combat inflation by slowing the economy. Officials indicated in December they expected to raise rates further in 2023. Many economists think climbing rates heighten the risk of a U.S. recession.
The new inflation figures will follow several signs that U.S. economic activity cooled in late 2022. U.S. imports and exports fell in November from October, while retail sales, manufacturing output and home sales all declined. Job and wage growth slowed in December.
JPMorgan Chase & Co. Chief Executive Jamie Dimon said Tuesday the Fed could need to lift its benchmark federal-funds rate to 6% to tame inflation. That would be higher than the peak level between 5% and 5.5% in 2023 that most Fed officials projected after their December meeting.
"Inflation won't quite go down the way people expected," Mr. Dimon said. "But it will definitely be coming down a bit."
Economists surveyed by The Wall Street Journal estimated that the CPI fell 0.1% in December from November due to sharply falling energy prices. They estimated that core CPI, which excludes energy and food prices, rose 0.3% during the same period.
They estimated the CPI increased 6.5% in December from a year earlier, while core CPI rose 5.7%.
Inflation remained high across the globe in November, though it abated during the month, the Organization for Economic Cooperation and Development said Tuesday. Consumer prices across the Group of 20 largest economies -- which contribute four-fifths of economic output worldwide -- rose 9% from a year earlier in November, down from October's 9.5% increase, the first drop in the G-20 inflation rate since August 2021.
Inflation took off in 2021 as the economy rebounded from the Covid-19 pandemic, powered by pent-up consumer spending that got a boost from low interest rates and government stimulus. Snarled supply chains fueled higher prices for many goods. Russia's invasion of Ukraine in early 2022 also tightened supplies of energy and other commodities, further stoking inflation worldwide.
Inflation pressures dissipated last summer as supply chains improved and energy prices fell. Shipping costs from China to the West Coast are near prepandemic levels. Gasoline prices have declined, with the national average price of regular unleaded gasoline at $3.27 a gallon on Wednesday, down about 50 cents a gallon from mid-November, according to OPIS, an energy-data and analytics provider. Gasoline prices peaked in mid-June at a record $5.02 a gallon.
"Logistics prices have also slowed materially, shipping costs are back to where they were pre-Covid," said Jake Oubina, senior economist at Piper Sandler. "These were all inputs that a lot of retailers had to pass through to consumers, and the alleviation on the cost side is creating the wherewithal to discount more aggressively as we head into 2023."
Some economists worry that rapid wage growth could keep consumers flush with cash and companies keen to raise prices to compensate, keeping inflation above the Fed's 2% target.
The clearest impact of Fed tightening so far is in the housing market. Existing-home sales fell in November for a 10th straight month as high mortgage rates boosted buyers' costs.
Ian Snowden, a 33-year-old tech salesman, said the shift to remote work after the pandemic hit allowed him to move to Asheville, N.C., where he has easy access to hiking, fishing and other outdoor activities.
The move proved expensive, though. After losing out to cash buyers in bids for existing homes, Mr. Snowden signed a contract in September 2021 to buy a newly constructed property. By the time his home was completed the following June, mortgage rates had doubled. On top of that, the construction company told him that he was on the hook for an extra $25,000 to offset unexpectedly high costs for concrete, labor and other items -- or he could back out of the contract.
At that point, Mr. Snowden said, he was already selling his old house and had made plans to move, so he wasn't going to back out. "So much was already in motion," he said. Between the higher mortgage rates and the additional costs, the monthly mortgage payment increased $200, he said.
Write to Gwynn Guilford at gwynn.guilford@wsj.com
(END) Dow Jones Newswires
January 12, 2023 08:34 ET (13:34 GMT)
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