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Inflation eased in December as consumers saw prices drop at the gasoline pump, giving households another hope that price pressures are continuing to ease from their highest levels in decades.
The US Bureau of Labor Statistics said on Thursday that inflation leveled off through 2022, with an annual reading of 6.5% as measured by the Consumer Price Index. he was in line with economists’ expectations
The CPI reading for December marked the smallest 12-month increase since October 2021. it fell off 7.1% in November,
The index measures how fast average prices are rising or falling for a basket of goods and services such as consumer electronics, food, utilities and tickets to sporting events.
A decline in the annual inflation rate does not necessarily mean that consumers saw deflation, which occurs when overall prices decline. The annualized rate was still positive in December – meaning prices rose but at a slower pace than earlier in the year.
Monthly price movements are a better gauge of short-term inflation trends than the annual rate. Significantly, the monthly inflation reading was negative – a decline of 0.1% – meaning average prices for US consumers fell in December relative to November. The last time this happened was in May 2020, when consumer demand fell in the initial months of the Covid pandemic.
“Inflation is at its peak,” said Mark Zandi, chief economist at Moody’s Analytics. “It is continuing to moderate and at this time, quickly.
“I don’t think people will be talking about inflation this time next year,” Zandi said. “It won’t be at the top of their agenda when thinking about their own finances.”
During the decline, the annual inflation rate remained at its highest level since the early 1980s. Pandemic-era inflation peaked at 9.1% in June 2022.
Items with the fastest price increases in 2022 included food in primary and secondary schools (up 305% in prices), eggs (up 59.9%), margarine (up 43.8%), fuel oil (up 41.5%) and airline fares (up 28.5%). up to) are included. ,
Some of these prices rose for reasons beyond broader pandemic-era inflationary factors, such as snarked supply chains, suppressed consumer demand, domestic cash transitions, labor shortages and the war in Ukraine.
For example, the US suffered the deadliest bird-flu outbreak in history last year, Causing the death of millions of chickens and dramatically increasing egg prices, Global weather events and export restrictions in major vegetable-oil producers such as Indonesia, Canada and Brazil Contributed to rapidly rising margarine prices, Federal pandemic-era waivers for free school lunches expired Last year, the root cause of the increase in food in schools.
At the opposite end of the spectrum, some items had negative inflation rates in 2022. Those with the biggest annual price declines included consumer electronics such as smartphones and TVs (whose prices are expected to decline by 22.2% and 14.4%, respectively, in 2022). Car and truck rental prices declined by 4.9%, while beef and veal prices declined by 3.1%, women’s clothing by 2.3% and admission to sporting events by 1.5%.
Decline in inflation rate for electronics may seem counterproductive for iPhones and other gadgets was not necessary Come in 2022 with huge discount. In fact, the “decline” on paper is due to the federal government. Accounts for improvements in product quality over time,
On a month-on-month basis, other categories saw larger movements between November and December.
The monthly 9.4% decrease in gasoline prices was “by far the largest contributor” to overall deflation in December, according to the CPI report. Average gas prices fell to $3.09 a gallon on December 26, from $3.53 a month earlier, according to the weekly. statistics Published by the Energy Information Administration.
This is largely a function of lower global prices for crude, which is refined into gasoline. oil prices – which shot in the first half of 2022 Andrew Hunter, senior US economist at Capital Economics, said the decline came largely amid supply shocks from Russia’s unprovoked invasion of Ukraine – amid fears of a potential recession and uncertainty about future energy demand.
“The massive amount of inflation that we had from rising gas prices has now been almost completely reversed,” Hunter said.
According to the CPI report, other categories that declined for the month of December included used cars and trucks (down 2.5%), airline fares (3.1%), and new vehicles and personal care, which each declined 0.1%. Is.
Specifically, the shelter index increased during the month, with prices rising from 0.6% to 0.8%. But signs indicate that housing costs have peaked and should begin to moderate “meaningfully” in CPI data over the summer and into the second half of the year, Zandi said.
If inflation remains soft, it will be a welcome relief for households. The average person has lost purchasing power because their wages have increased at a slower rate than the prices of the things they buy.
Adjusted for inflation, hourly wages have declined by 1.7% in the past year, According to the US Department of Labor.
The typical household needs to spend $371 more per month to buy the same goods and services last year, according to Moody’s analysis of the annual inflation rate in December.
A healthy economy experiences a small degree of inflation each year. US Federal Reserve officials aim keep inflation around 2% a year, But after this, in early 2021, the prices started increasing at an unusually fast pace. years low inflation.
As the US economy reopened, a supply-demand imbalance fueled inflation that was initially limited things like used carsBut that has since spread and lasted longer than many officials and economists expected.
However, in America the problem is not quiet. By the first quarter of 2022, the average annual inflation rate in 37 of the 44 developed countries of the Organization for Economic Co-operation and Development had at least doubled from its pre-pandemic level, According To Pew Research Center.
However, on a global scale, inflation first appeared in the US. This is partly due to federal support for families ending COVID-related restrictions sooner in many states than in the rest of the world and kickstarting the economic recovery.
As the economy reopened, Americans had more disposable income, a result of federal funds such as stimulus checks and stay-at-home demands. The Covid-19 lockdown rattled global supply chains – meaning fewer goods went into it to buy enough cash, driving up prices. The war in Ukraine led to an increase in global energy costs, increasing the costs of producing and distributing commodities in general.
The momentum driving higher inflation for physical goods seems to be reversing. Supply-chain issues have largely faded, while a stronger US dollar relative to foreign currencies generally makes it less expensive to import goods from abroad.
But inflation for “services” — which can include anything from haircuts to hotel stays — has proven a bit sticky. Labor cost is a big driver. Labor demand is near historic highs and low unemployment ratehelping fuel competition for workers and so fast rising wages – In turn entailing higher labor costs for businesses and putting upward pressure on their service costs.
Economists generally prefer to use a so-called “core” inflation measure to measure inflationary trends in the US economy. This measure of CPI measures prices without food and energy (such as gasoline and fuel oil), which can experience large fluctuations from month to month.
Monthly inflation excluding food and energy was 0.3% in December, up slightly from 0.2% in November. According to the CPI report, shelter was a “major” factor in that increase.
Housing costs are a major component of core inflation, and account for the largest share of the average household budget. Government Measures to Housing Inflation is slow, Hunter said. Hunter said data from the private sector suggests rental growth is slowing “very sharply”, which should be reflected in the CPI in the coming months.
“Aside from housing, it looks like inflation across the board is cooling off pretty quickly,” Zandi said. “I think it’s already starting to feel better for people.”