US inflation falls at slowest pace in over a year

The annual inflation rate in the United States fell in December to its slowest pace in more than a year, another sign that price pressures have peaked as part of the Federal Reserve’s historic tightening campaign. .

The consumer price index, released Wednesday by the Bureau of Labor Statistics, fell for a sixth consecutive month, registering an annual increase of 6.5%.

While still close to a multi-decade high, this is the slowest pace since October 2021 and represents a notable decline from the 9.1% threshold reached in June. Compared to the previous month, prices fell by 0.1%.

The closely watched “core” measure, which excludes volatility in food and energy prices and is considered the best indicator of the path of inflation, rose 0.3% from the previous month , translating into an annual rate of 5.7%.

Fed officials are watching the latest inflation data closely as they decide how much more to squeeze the US economy. After already pulling back half a point in rate hikes last month – after four consecutive increases of 0.75 percentage points – the central bank is now considering whether it can return to a more typical speed of a quarter of a percentage point. point at its next political meeting.

In December, the Fed chose to slow the pace of rate hikes after it had already raised them significantly over a short period. It also took into account the time required for changes in monetary policy to have an impact on economic activity.

The decision follows a series of better-than-expected inflation data that suggests consumer demand is starting to fall more noticeably. This happened alongside a loosening of supply chain nodes, helping to lower prices for energy and everyday items such as cars, appliances and clothing.

The Fed pays close attention to services inflation, once energy, food and housing costs are eliminated, which officials say is closely tied to the labor market and earnings wages that have piled up as employers seek to overcome an acute shortage of workers. . Wage growth has slowed from its peak, but there are still strong job creations and the unemployment rate is still hovering around historic lows.

The problem is that the price pressures linked to services will be difficult to eradicate and will require a period of very weak growth and higher unemployment. Officials have sent a unified message since their December meeting that the federal funds rate will likely need to rise above 5% and stay there through 2023 in order to keep inflation under control. It currently fluctuates between 4.25% and 4.5%.

This runs counter to current market prices, suggesting the Fed will raise its key rate to just below 5% and make cuts by the end of the year.

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