December inflation report likely to ease prices further but remain high

The high-stakes inflation report on Thursday is expected to show that price gains slowed further in December as gas and energy costs fell, but still remained historically high.

Economists expect the consumer price index, which measures a basket of goods including gasoline, health care, groceries and rents, to show that the monthly price gain in December was down from a 0.1% November increase. on an annual basis, inflation forecast The annualized rate has climbed to 6.5%, from a low of 7.1% in November and a high of 9.1% in June.

Excluding the more volatile measures of food and energy, prices are expected to rise 0.3%, or 5.7% annually, suggesting that underlying inflationary pressures remain strong.

“I think inflation peaked a long time ago, in the early to middle part of last year,” Luke Tilley, chief economist at the Wilmington Trust, told Fox Business. “The question has always been how quickly this will come down. Clearly monetary policy is working and has come on the shelf.”

US inflation expectations fell to lowest since 2021 in November, NY Fed survey shows

US inflation

A vendor arranges clothing for sale at the Holiday Market at Eastern Market on Sunday, December 11, 2022 in Detroit, Michigan. (Emily Elkonin / Bloomberg via Getty Images / Getty Images)

While consumers have recently found relief from inflation in the form of lower gas prices, the latest CPI report will show that the cost of food and rent remain uncomfortably high. This is a worrying development as high housing and food costs directly and acutely affect household budget,

last before report federal ReserveThe U.S.’s next policy-setting meeting will be held on February 1 and will have huge implications for the US central bank, which is tightening monetary policy at the fastest rate in decades as it tries to crush out-of-control inflation. Officials have already approved seven straight rate hikes through 2022, raising the federal funds rate to a range of 4.25% to 4.5%, well above restrictive levels. Officials have since indicated that further increases are on the way this year and that they intend to keep rates at higher levels for some time.

Wall Street firms and investors are watching anxiously to see whether the Fed sticks with another 50-basis-point hike when policymakers meet in February or approves a 25-basis-point increase instead . Shares rose on Wednesday ahead of the report.

The CME FedWatch tool projects a 77% chance of a quarter point increase and a 23% chance of a half point increase.

“A weak inflation report on Thursday morning doesn’t really change their near-term outlook or their language,” Tilley said, expecting a peak rate of around 5%. “It basically confirms where they are coming from wanting to slow down the pace of hikes.”

Federal Reserve Chairman Jerome Powell

Federal Reserve Chairman Jerome Powell speaks during a news conference following a meeting of the Federal Open Market Committee (FOMC) on May 4, 2022 in Washington, DC. (Al Drago/Bloomberg via Getty Images/Getty Images)

Famous investor Michael Berry said, America is heading towards recession and there will be another surge in inflation in 2023

The Fed is also watching other economic indicators, including job growth and consumer inflation expectations. In another welcome sign for the central bank, last week’s December jobs report showed some signs of a softening labor market and a lack of rapid wage growth.

“Overall, this report should serve to reassure the Fed that the ongoing slowdown in the pace of monetary policy tightening – characterized by a 25 bps rate hike in early February – is appropriate, although expectations of a dovish pivot still remain.” be misleading,” Gregory Daco, chief economist at EY Parthenon, said after Friday’s jobs report.

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