US inflation and consumer spending cooled in December

Washington – The Federal Reserve’s favorable inflation gauge eased further in December and 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 a Department of Commerce report on Friday. 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. It is unlikely that the Fed will change its expectation that it will raise the key rate by 0.25 percentage points 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%.

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

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.

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.

Friday’s data could heighten concerns that the willingness of American consumers, the main engine of the economy, to continue spending freely is starting to crack under the weight of rising prices and interest rates.

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:

Big companies, mostly in the technology sector, have announced massive job cuts in recent months, raising fears that a recession is on the horizon. But these job cuts are still not enough to lift the unemployment rate, which remains at its lowest level in half a century.

In fact, the number of people seeking unemployment benefits (surrogate 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.

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