U.S. inflation and consumer spending cooled in December

WASHINGTON >> The Federal Reserve’s favorable inflation gauge eased further in December as consumer spending fell. This is the latest evidence that a series of Federal Reserve rate hikes are slowing the economy.

Prices rose 5% year-on-year last month, down from a 5.5% year-on-year gain in November, according to today’s report from the Department of Commerce. It was a three-game losing streak.

Private consumption decreased by 0.2% from November to December and was revised downwards to show a 0.1% decrease from October to November. Last year’s holiday season sales were sluggish for many retailers, and his overall spending in the final two months of 2022 was his lowest in two years.

The slowdown in consumer spending is likely to be welcomed by Fed officials who are trying to cool the economy by making loans increasingly expensive. Their trust may increase. Still, the year-on-year decline in inflation is consistent with his Fed outlook, and he is unlikely to change his expectation that the Fed will raise key rates by a quarter of a percentage point next week.

On a monthly basis, November-December inflation rose by just 0.1% for the second straight month. Energy prices fell 5.1%, and so did the overall cost of goods.

Excluding volatile food and energy costs, ‘core’ prices rose 0.3% from November to December, up 4.4% year-on-year. Year-over-year, he’s down from 4.7% in November, but still well above the Fed’s target of 2%.

Falling prices for commodities such as oil, gas, copper, timber and wheat, along with unblocked supply chains, have led to lower retail prices for autos, furniture, clothing and more.

But price gains remain persistently high for some goods and services, including eggs, which jumped 60% last month compared to a year ago. Egg prices were up 11.1% in December alone. rose. Avian influenza outbreaks caused flock culling and increased feed costs.

Rental car prices are also up nearly 27% year-on-year, up 1.6% in December alone.

But for many other items, inflation has eased. Coffee prices have risen nearly 14% over the past year, but he rose only 0.2% last month. Clothing and footwear prices have also increased by just 3% over the past year and 0.3% last month.

Today’s numbers are a departure from the familiar inflation data from the Consumer Price Index. The CPI, released earlier this month, is also steadily decelerating.

For consumers, whose spending accounts for about 70% of economic activity, Oren Crackin, chief U.S. economist at Oxford Economics, said: “The latest data are the first concrete indications that the mainstay of the economy is slowing. It’s showing signs,” he said.

The Federal Reserve (Fed) has been trying to slow the spending, growth and skyrocketing prices that have plagued the country for almost two years. Key interest rates, which affect many consumer and business loans, range from near zero last March to 4.25% to 4.5% now. Inflation is slowing, but most economists believe the Fed’s harsh treatment will push the economy into recession sometime this year.

Lydia Bousseur, senior economist at EY-Parthenon, said: “The US economy is in the midst of another mild recession this year.

A recession usually causes widespread layoffs and high unemployment. But for now, US employers are adding workers and the unemployment rate remains at a half-century low of 3.5%.

An eventual recession by a group of economists at the National Bureau of Economic Research, a non-profit organization that officially determines when a recession will occur if the job losses occurring at many financial and technology companies cause unemployment. may be declared. NBER economists typically make such announcements long after the recession has actually begun.

For now, the number of people seeking unemployment benefits (surrogates for layoffs) fell to 186,000 last week, a very low level in history. Walmart, America’s largest employer, also announced it would raise the minimum wage from $12 to $14 an hour to retain and attract workers.

The Fed is in an increasingly sensitive position. Chairman Jerome Powell stressed that the central bank plans to continue raising the key rate, potentially keeping it there until the end of the year. But that policy could become untenable if a sharp recession takes hold.

On Thursday, the government reported that the economy grew at a healthy clip in the last three months of last year, although much of that expansion was due to temporary factors. Reduce deficit.

On the other hand, personal consumption in the October-December quarter overall weakened from the previous quarter, and capital investment fell sharply. Overall, the economy expanded at an annual rate of 2.9% in his October-to-December quarter, down slightly from his 3.2% pace in the previous quarter.

If consumers are reluctant to spend more, corporate profit margins may shrink and many may cut costs. This trend could eventually lead to a wave of layoffs. Bank of America economists expect the economy to grow slightly in his first three months of the year, but contract in his next three quarters.

More frugal consumers threaten to plunge the economy into recession. But they also help keep inflation down. Companies can’t keep raising prices unless Americans pay higher costs.

The Federal Reserve’s Beige Book, which collected anecdotal reports from businesses across the country last week, said:

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