Rising US consumer prices softened again last month, raising hopes that inflation’s grip on the economy will continue to loosen this year and that it will likely require less drastic action by the Federal Reserve to control it.
The government said on Thursday that inflation eased to 6.5% in December from a year earlier. This was the sixth consecutive year-on-year deceleration, down from 7.1% in November. On a monthly basis, prices actually slipped 0.1% from November to December, the first such decline since May 2020.
The soft readings add to growing signs that the worst inflation in four decades is slowly abating. Still, the Fed doesn’t expect inflation to slow enough until 2024 to get close to its 2% target. this month.
Excluding volatile food and energy costs, so-called core prices rose 5.7% in December from a year earlier, slower than a 6% year-on-year rise in November. From November to December, core prices rose just 0.3%, the third straight monthly decline after a 0.2% increase in November.
Even as inflation gradually slows, it remains a painful reality for many Americans, especially as necessities like food, energy and rent have risen over the past 18 months.
Grocery prices rose 0.2% from November to December, the smallest increase in nearly two years. Still, those prices are up 11.8% from a year ago.
Behind the decline in overall inflation is the fall in gas prices. The national average price for a gallon of gas has dropped from $5 in June to $3.27 as of Wednesday, according to AAA.
Also contributing to the slump are used car prices, which fell for the sixth month in a row in December. New car prices have also come down. The cost of airline tickets and personal care such as haircuts has also come down.
The supply chain glitches that used to drive up the cost of goods in the past have now been resolved to a large extent. Consumers have also shifted much of their spending away from material goods and instead toward services such as travel and entertainment. As a result, the price of goods including used cars, furniture and clothing has fallen for two straight months.