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Inflation Cools in December As Energy Prices Drop, but There’s Still Bad News

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The December Consumer Price Index (CPI), which was released today, shows that inflation cooled in December. However, there are warning signs that indicate that Americans should be prepared for higher-than-normal costs in the future.

The good news is that inflation dropped 0.1 percent in November and is now at 6.5 percent compared to a year ago. This is a sharp drop from November’s 7.1 percent increase. However, this was mainly due to energy price drops.

CNBC:

In line with the Dow Jones estimate, the consumer price index, which measures the cost of a wide range of goods and services, decreased by 0.1% in the month. This was the biggest month-over-month drop since April 2020. It was due to Covid being fought in large parts of the country.

Even though the headline CPI fell 6.5% from last year, it still showed the burden the rising cost of living has continued to place on American households. This was however the lowest annual increase since October 2021.

Core CPI, which excludes volatile food and high energy prices, rose 0.3%. This was also in line with expectations. Core was 5.7% higher than a year ago. This is again in line with expectations.

The monthly drop in fuel oil prices contributed to a decrease of 4.5 percent in the energy index. However, food prices increased slightly to 0.3 percent.

The Wall Street Journal points this out: the U.S. isn’t out of the woods yet.

These new inflation numbers follow several indicators that U.S. economic activity has slowed in the latter part of 2022. U.S. exports and imports decreased in November compared to October. Retail sales, manufacturing output, and home sales also declined. The decline in wage and job growth was a result of a slowdown in December.

Jamie Dimon, chief executive of JPMorgan Chase & Co., said Tuesday that the Fed might need to raise its benchmark federal funds rates to 6% in order to control inflation. This would be higher than the 5% to 5.5% peak rate in 2023, which was predicted by Fed officials after their December meeting.

Mr. Dimon stated that inflation will not go down as expected. It will, however, be falling a little.

Jerome Powell, Federal Reserve Chairman, indicated that interest rate increases are likely to continue.

Powell spoke with the Riksbank (the central bank of Sweden) on Tuesday. He stated that price stability was the foundation of a healthy economy. It also provides the public with many benefits over time. However, restoring price stability in an inflation-prone environment can be difficult. To slow down the economy, we need to raise interest rates.

He said, “The lack of direct political control over the decisions we make allows us to take these necessary steps without taking into consideration short-term political factors.”

The Fed will continue to do what it has been doing, in other words. The Biden administration cheers today’s report, believing it is a sign that President Obama’s plan to recover the economy is working.

However, most economic indicators suggest that the U.S. should still be prepared for a recession. Experts in financial services warn that Americans should start saving, if not already doing so. Economists see signs in the latest jobs report that suggest that employers might be thinking about a recession.

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