Consumer prices soared in the US more than expected in December and jumped from 3.1% to 3.4% year-on-year, with an increase of three tenths, instead of the two that had been predicted. This data confirms that inflation, in the process of cooling throughout 2023, still has a grip on the US economy despite the repeated efforts of the Federal Reserve (Fed) to control it.
This shows that the price war is still on the path to taming it, although there are many bumps along the way. If we ignore the most volatile elements, such as food and energy, core inflation grew three tenths, as in the month of November, but the annual percentage remains at 3.9%, above the forecast of 3.9%. 8% expected although below 4% last month.
This rise represents that the Fed still cannot claim victory, as its president Jerome Powell had already anticipated, after eleven increases in interest rates since March 2022, which have placed the price of money at 5.25-5.50% , the highest level in 22 years. The Federal Reserve’s goal is to leave inflation at 2%.
Analysts consider that this rebound, however, will not influence the decision of the central bank governors to begin cutting interest rates in 2024. But it does seem to cause a certain disenchantment among investors, since this higher inflation may perhaps mean that the Fed delays the moment in which it begins this policy change.
The most optimistic visions maintain the March meeting, two years after the fight began, as the moment to begin this cut. There is also division, and uncertainty, over the number of times the Fed will adopt cuts. The markets expect at least six, but the central bank has made it clear that it is in no hurry and that this figure will remain at three.
Inflationary pressure was revived at the end of 2023 with the rise, especially in energy and housing prices, which interrupted a slowdown that had been consolidating throughout the year. Especially housing, which rose 0.5% from one month to the next and stood at a total of 6.2% in the annual comparison. This represents two-thirds of the increase in inflation when Fed officials expected a fall during 2023.
Energy became more expensive by 0.4%, after a drop of 2.3% in November, due to gasoline rising 0.2%. Natural gas, on the other hand, declined 0.4%.
The overall price of food gave consumers a break. They rose 0.2%, the same ratio as in November, but fell to 2.7% annually compared to 2.9% in November.
There was a rise in the price of eggs of 8.93%, but it is still far from the annual average of 23.8%. A few months ago, eggs became the symbol of runaway inflation. The cost at grocery stores rose 0.1%, while eating at restaurants became more expensive by 0.3%, down from 0.4% in November.
Meanwhile, inflation-adjusted wages rose 0.2% in November, leaving the annual total at a modest 0.8%.
