Inflation Increases Slightly in December

(Illustration courtesy of BLS)

The headline inflation rate increased modestly during December, the Bureau of Labor Statistics reported Thursday.

The headline Consumer Price Index figure rose 0.3% in December—up from November’s 0.1% rate—and 3.4% year over year.

“While headline CPI rose to 3.4% year-over-year in December, the trend in inflation continues to ease,” Wells Fargo Economics, Charlotte, said in a commentary. “At 3.9%, core CPI on a year-over-year basis is below 4% for the first time in two and a half years, while the three-month annualized rate of 3.3% points to further slowing ahead.

“We look for inflation to slow further over 2024 amid improved supply dynamics and more tepid demand from consumers,” Wells Fargo Economics said. “However, progress is likely to be slower-going this year and keep policymakers uneasy about how quickly inflation can return to 2% on a sustained basis.”

First American Economist Ksenia Potapov noted that despite the monthly uptick in the CPI, underlying price pressures eased in December. “Services inflation has been steadily decelerating since February 2023, while goods inflation has hovered near zero for four months,” she said.

“One of the reasons that services inflation has likely been so slow to come down is shelter, which is considered a service. Shelter inflation lags observed prices by approximately six-to-12 months, so rent declines on new leases are slow to show up in the inflation index. However, those rent declines will increasingly drag down overall inflation throughout 2024.”

If one looks beyond the month-to-month fluctuations, the latest CPI report suggests inflation is continuing to moderate, Potapov said. “[it indicates that] we are on the right track, so there’s not much for the Federal Reserve to do other than wait patiently.”