The Federal Reserve’s preferred inflation gauge cooled further last month even as the economy kept growing briskly, a trend sure to be welcomed at the White House as President Joe Biden seeks reelection in a race that could pivot on his economic stewardship.
Friday’s government report showed that prices rose just 0.2% from November to December, a pace consistent with pre-pandemic levels and barely above the Fed’s 2% annual target. Measured from a year earlier, prices increased 2.6%.
Excluding volatile food and energy costs, so-called “core” prices rose just 0.2% from month to month and 2.9% from a year earlier – the smallest such rise since March 2021. Economists consider core prices a better gauge of the likely path of inflation.
The latest data suggests that the economy is achieving an elusive“ soft landing,” in which inflation falls back to the Fed’s target without a recession. That outcome could make it easier for the Fed to consider cutting its key interest rate, which it raised 11 times since March 2022 to attack inflation. Higher interest rates have throttled home sales by raising the cost of borrowing. Businesses have also chafed under the higher borrowing costs.
On Thursday, a government report showed that the economy expanded at a surprisingly strong 3.3% annual pace in the final three months of last year. Solid consumer spending propelled the growth, capping a year that had begun with widespread expectations of a recession but instead produced a healthy expansion.
Biden’s Republican critics have sought to highlight what had been the biggest inflation spike in four decades, for which they have largely blamed the president’s spending policies. But with inflation having dropped sharply after an extended period of gloomy consumer sentiment, Americans are starting to show signs of feeling better about the economy. A measure of consumer confidence by the University of Michigan, for example, has jumped in the past two months by the most since 1991.
The details in Friday’s report all point to inflation being in check: Measured over the past six months, prices are up just 1.9%, which is actually below the Fed’s 2% target. Over the past three months, the figure is even lower: 1.5%.
Grocery prices, after nearly two years of sharp increases, were unchanged in December and were just 1.3% higher than a year earlier. Chicken prices actually dipped 0.4% from November to December; they’re up 1.2% compared to a year ago. Beef and veal prices, though, climbed 0.3% in December and are still 8.7% higher than 12 months earlier.
Read the full report from the Associated Press here.