The inflation rate continues to slow, with the December CPI report reflecting improvements following the Federal Reserve’s tightening of currency.
- The U.S. Department of Labor Bureau of Labor Statistics revealed the December CPI on Thursday morning.
- Prices dropped 0.1% while overall inflation decreased to 6.5% from 7.1% in November—a further decrease from 9.1% in June but far below the Federal Reserve’s goal of 2%.
- This still marks the sixth month of consecutive decreasing inflation rates.
- Stocks rallied Wednesday in anticipation of Thursday’s CPI report, according to Barron’s. The Dow Jones increased 0.8%, S&P500 increased 1.3%, and NASDAQ increased 1.8%. Because December CPI met expectations, stocks rallied Thursday morning, with the S&P 500 advancing by 0.1%, according to CNBC.
- The Labor Bureau previously released its December unemployment report last week.
Why It’s Important
A slight improvement was to be expected, although some investors preparing for lower expectations results were disappointed. As CNBC notes, the direction has stocks somewhat confused as it remains to be seen where the direction will go in the coming weeks or months.
The Federal Reserve is expected to continue hiking interest rates. No announcement for that is forthcoming, leaving investors somewhat uncertain about how to plan for 2023.
“Inflation data slowed in December, as widely expected, but labor market data remained strong, with both initial and continuing claims coming in lower than expected. Wall Street struggled to weigh how each would affect future rate hike decisions for the Federal Reserve,” says Bloomberg.
As we noted last month, slowing increases on the inflation rate has cooled the Federal Reserve’s bullish strategy to bring it under control, although the recent report of their December meeting minutes suggests they are no less determined to continue pushing high interest rates at the cost of economic growth and the jobs market.
President Joe Biden spoke Thursday morning at a press conference about the good news, claiming that food prices were dropping at the Inflation Reduction Act was to be thanked for, and blaming Republicans for inflation getting worse. The Center Square fact-checked Biden’s claim and says the food price index has increased in the past year.
“Today’s inflation numbers are good news, the good news about our economy. We have more work to do, but we’re on the right track. We’re seeing bright spots across the country where great things are happening. These were all pieces of that big law that we passed last year. Now they’re kicking in, and Americans are starting to feel the benefits … House Republicans campaigned on inflation. They didn’t say their plan if elected was to make inflation worse,” says Biden.
As we previously reported, the Inflation Reduction Act doesn’t address rising food and commodities prices. It increases spending by hundreds of billions of dollars, contributing to the cause of why inflation is rising and undoing the Federal Reserve’s efforts to tighten monetary policy. Congress additionally passed $1.7 trillion in omnibus spending in December, further inflating the currency.
“The easy part of the decline in inflation may be underway—goods inflation is declining, commodity prices are falling. The much harder part is getting that service inflation down consistent to 2%,” TD Securities global head Priya Misra told Bloomberg.