April 30, 2024
WASHINGTON (AP) — Higher energy and housing prices boosted overall U.S. inflation in December, a sign that the Federal Reserve's drive to slow inflation to its 2% target will likely remain a bumpy one.
Thursday’s report from the Labor Department showed that overall prices rose 0.3% from November and 3.4% from 12 months earlier. Those gains exceeded the previous 0.1% monthly rise and the 3.1% annual inflation in November. The December figures came in slightly above economists' forecasts.
Housing costs accounted for more than half the increase in prices from November to December. Energy costs, led by electricity and gasoline, along with food prices, also contributed to the increase.
Excluding volatile food and energy costs so-called core prices were up 3.9% from a year earlier. Economists pay particular attention to core prices because, by excluding costs that typically jump around from month to month, they are seen as a better guide to the likely path of inflation.
The Federal Reserve, which began aggressively raising interest rates in March 2022 to try to slow the pace of price increases, wants to reduce year-over-year inflation to its 2% target level.
The Federal Reserve Bank of New York reported this week that consumers now expect inflation to come in at just 3% over the next year, the lowest one-year forecast since January 2021.
Many economists have suggested that slowing inflation from 9% to around 3% was easier to achieve than reaching the Fed’s 2% target could prove to be.
“Inflationary pressures, while generally inching lower, remain stubbornly higher than expectations as the so-called ‘last mile’ requires more time to reach the final goal,″ said Quincy Krosby, chief global strategist for LPL Financial.
The December U.S. jobs report that was issued last week contained some cautionary news for the Fed: Average hourly wages rose 4.1% from a year earlier, up slightly from 4% in November. And 676,000 people left the workforce, reducing the proportion of adults who either have a job or are looking for one to 62.5%, the lowest level since February.
That is potentially concerning because when fewer people look for work, employers usually find it harder to fill jobs. As a result, they may feel compelled to sharply raise pay to attract job-seekers — and then pass on their higher labor costs to their customers through higher prices. That’s a cycle that can perpetuate inflation.
