May 6, 2024
WASHINGTON (AP) — Inflation remains a painful reality for many Americans, especially with such necessities as food, energy and rents having soared over the past 18 months.
Grocery prices rose 0.2% from November to December, the smallest such increase in nearly two years. Still, those prices are up 11.8% from a year ago.
Inflation was 6.5% in December compared with a year earlier, the government said Thursday.
The Fed doesn’t expect inflation to slow enough to get close to its 2% target until well into 2024. The central bank is expected to raise its benchmark rate by at least a quarter-point when it next meets at the end of this month.
Excluding volatile food and energy costs, so-called core prices rose 5.7% in December from a year earlier. From November to December, core prices increased 0.3%.
Behind much of the decline in overall inflation are falling gas prices. The national average price of a gallon of gas has tumbled from a $5 in June to $3.27 as of Wednesday, according to AAA.
Also contributing to the slowdown are used car prices, which fell for a sixth straight month in December. New car prices declined, too. The cost of airline tickets and personal care such as haircuts also dropped.
In their remarks in recent weeks, Fed officials have underscored their intent to raise their benchmark short-term rate by an additional three-quarters of a point in the coming months to just above 5%. Such increases would come on top of seven hikes last year, which led mortgage rates to nearly double and made auto loans and business borrowing more expensive.
Futures prices show that investors expect the central bank to be less aggressive and implement just two quarter-point hikes by March, leaving the Fed’s rate just below 5%. Investors also project that the Fed will cut rates in November and December, according to the CME FedWatch Tool.
Fed Chair Jerome Powell has sought to push back against that expectation of fewer hikes this spring and cuts by the end of the year, which can make the Fed’s job harder if investors bid up stock prices and lower bond yields. Both trends can support faster economic growth just when the Fed is trying to cool it down.
The minutes from the Fed’s December meeting noted that none of the 19 policymakers foresee rate cuts this year.
