Rising U.S. consumer prices moderated again last month, bolstering hopes that inflation’s grip on the economy will continue to ease this year and possibly require less drastic action by the Federal Reserve to control it.
Inflation declined to 6.5% in December compared with a year earlier, the government said Thursday. It was the sixth straight year-over-year slowdown, down from 7.1% in November. On a monthly basis, prices actually slipped 0.1% from November to December, the first such drop since May 2020.
The softer readings add to growing signs that the worst inflation bout in four decades is gradually waning. Still, the Fed doesn’t expect inflation to slow enough to get close to its 2% target until well into 2024. The central bank is expected to raise its benchmark rate by at least a quarter-point when it next meets at the end of this month.
Excluding volatile food and energy costs, so-called core prices rose 5.7% in December from a year earlier, slower than the 6% year-over-year increase in November. From November to December, core prices increased just 0.3%, the third straight monthly slowdown, after rising 0.2% in November.
Even as inflation gradually slows, it remains a painful reality for many Americans, especially with such necessities as food, energy and rents having soared over the past 18 months.
Grocery prices rose 0.2% from November to December, the smallest such increase in nearly two years. Still, those prices are up 11.8% from a year ago.
Behind much of the decline in overall inflation are falling gas prices. The national average price of a gallon of gas has tumbled from a $5 in June to $3.27 as of Wednesday, according to AAA.
Also contributing to the slowdown are used car prices, which fell for a sixth straight month in December. New car prices declined, too. The cost of airline tickets and personal care such as haircuts also dropped.
Supply chain snarls that previously inflated the cost of goods have largely unraveled. Consumers have also shifted much of their spending away from physical goods and instead toward services, such as travel and entertainment. As a result, the cost of goods, including used cars, furniture and clothing, has dropped for two straight months.