US Annual Inflation Rate Slows to 6.5 Percent; Food and Shelter Costs Add to Price Pressures

A shopper is seen past a sign displaying the price per pound of russet potatoes at a supermarket in Montebello, Calif., on Aug. 23, 2022. Frederic J. Brown/AFP via Getty Images

The U.S. annual inflation rate slowed to 6.5 percent in December 2022, from 7.1 percent in November 2022, according to the Bureau of Labor Statistics. The consumer price index dipped by 0.1 percent month over month.

The core inflation rate, which excludes the volatile food and energy sectors, eased to 5.7 percent last month, from 6 percent in the previous month.

Food prices remained elevated as the index was 10.4 percent higher than in the same period a year ago. Supermarket prices remained relatively unchanged from November 2022, with a rise of 11.8 percent year over year in December 2022.

Gasoline prices continued their downward trend, falling by 9.4 percent from November to December. On an annualized basis, gas prices are down by 1.5 percent. While the cost of fuel oil is up by 41.5 percent year over year, it fell by 16.6 percent month over month.

New vehicles slowed further to 5.9 percent and dropped by 0.1 percent month over month. Used car and truck prices declined by 8.8 percent year over year and fell by 2.5 percent month over month.

Apparel prices advanced by 2.9 percent, shelter costs rose 7.5 percent, and prices for transportation services increased by 14.6 percent. Medical care commodities and services advanced in price by 3.2 and 4.1 percent, respectively, year over year.

Within the food index, eggs recorded a considerable increase as prices surged by 60 percent year over year. From November to December, egg costs climbed by 11.1 percent. Other food items witnessed considerable gains from a year ago: margarine (43.8 percent), butter (31.4 percent), lettuce (24.9 percent), flour (23.4 percent), coffee (14.3 percent), and milk (12.5 percent).

A sign for limits on egg purchases sits on display at a grocery store in Irvine, Calif., on Jan. 11, 2023. John Fredricks/The Epoch Times

What won’t be good news for parents is that food at elementary and secondary schools spiked by 305 percent from a year ago.

Rents increased by 7.6 percent from last year and rent of primary residence surged by 8.3 percent, adding to broader shelter costs. Utilities also edged up higher, with electricity prices rising by 14.3 percent and utility piped gas service climbing by more than 19 percent.

Major U.S. stock indexes ended Jan. 12 with modest gains after the latest inflation data. The Dow Jones Industrial Average and the S&P 500 each added about 0.4 percent, and the Nasdaq Composite index rose about 0.3 percent.

Metal commodity prices soared after the report, with gold prices topping $1,900 an ounce and silver soaring by nearly 3 percent to above $24 per ounce.

The benchmark 10-year Treasury yield shed 5 basis points to around 3.50 percent.

What’s Next for Inflation?

Looking ahead to the January 2023 CPI, the Federal Reserve Bank of Cleveland expects the annual inflation rate to come in at 6.5 percent and the month-over-month reading to rise by 0.5 percent.

Greg McBride, the chief financial analyst at Bankrate, said that the inflation print “will command a lot of attention and go a long way toward further shaping expectations for the first Federal Reserve meeting of 2023.”

“Continued moderation in price pressures across a broader range of goods and services will underscore the notion that inflation has peaked and sustain the hope for further relief from inflation in the months ahead,” he said in a note.

The Federal Open Market Committee (FOMC) will hold its next two-day policy meeting on Jan. 31 and Feb. 1, with many investors anticipating a rate increase of just 25 basis points, according to the CME FedWatch Tool.

Moderating labor data and slowing inflation could nudge the Fed to hit the pause button on its tightening cycle by the spring, leaving the federal funds rate at about 5 percent, market observers say.

“This inflation data release is not enough to hinder a hawkish Fed,” said Toggle AI co-founder and President Giuseppe Sette. “Inflation is abating (as its leading indicators have been suggesting) but the Fed might consider that the level of inflation is still far too high, and the risk of sticky inflation too elevated, to stop the hiking cycle in its tracks. Until the labor market remains strong as it is—outside of tech and finance—the Fed might stay the course and keep hiking.”

The central bank’s Survey of Economic Projections has penciled in a median rate of 5.1 percent in 2023. Fed Chair Jerome Powell told reporters during last month’s post-FOMC meeting news conference that the institution is nearing closer to a restrictive level, which is monetary policy that slows economic growth.

Many Fed officials have presented the case that the central bank needs to lift rates higher, pause, and then leave them there to see how its actions are affecting inflation and the broader economy.

Federal Reserve Bank of Minneapolis President Neel Kashkari recently wrote in an essay posted to the regional central bank’s website that he sees the FFR peaking at 5.4 percent.

“While I believe it is too soon to definitively declare that inflation has peaked, we are seeing increasing evidence that it may have. In my view, however, it will be appropriate to continue to raise rates at least at the next few meetings until we are confident inflation has peaked,” he wrote.

“Once we reach that point, then the second step of our inflation fighting process, as I see it, will be pausing to let the tightening we have already done work its way through the economy.”

His colleagues have a slightly lower number in mind.

Speaking in a Wall Street Journal interview on Jan. 9, Federal Reserve Bank of San Francisco President Mary Daly thinks the benchmark rate needs to rise to a range of 5 and 5.25 percent to successfully grapple with inflation.

Federal Reserve Bank of Atlanta President Raphael Bostic also told the Atlanta Rotary Club on Jan. 9 that rates should rise to the 5 to 5.25 percent range and hold there for “a long time.”

“I am not a pivot guy. I think we should pause and hold there, and let the policy work,” he said.