As widely expected, inflation continued to cool down in the United States in December for the sixth month in a row, confirming that peak inflation is likely behind us.
According to the latest Consumer Price Index for All Urban Consumers (CPI-U), released by the U.S. Bureau of Labor Statistics, prices for goods and services increased at their slowest pace since October 2021 in December, rising by 6.5% over a year earlier. On a monthly basis, the CPI fell 0.1% in December, primarily due to the sharp decline in energy prices, particularly gasoline.
Smaller Increases Expected in 2023
The latest data is an encouraging sign that the aggressive interest hike policy initiated by the Federal Reserve Bank as its primary means to fight back against inflation has been effective. It also paves the way for further moderate increases in 2023. “I expect that we will raise rates a few more times this year, though, to my mind, the days of us raising them 75 basis points at a time have surely passed,” said Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, in a speech on Thursday. “In my view, hikes of 25 basis points will be appropriate going forward.”
However, inflation is still a ways away from the Fed’s targeted 2% rate, and Fed Chair Jerome Powell has said in previous comments that interest rates will likely keep increasing well into 2023 at least, including at the Fed’s next meeting in early February. The rising cost of services due to the price of labor remains a concern even as goods inflation is cooling down. “The biggest cost, by far, in that sector is labor,” Powell said. “And we do see a very, very strong labor market, one where we haven’t seen much softening, where job growth is very high, where wages are very high.”
A major contributing factor to wage increases is that many Baby Boomers–76 million Americans born between 1946 and 1964–having delayed their exit from the job market in the years following the Great Recession–are finally departing the workforce. With no replacement for these workers, the resulting labor shortage keeps pressure on employers to attract and retain workers with higher wages which, in turn, contributes to higher inflation.
We’ll keep you updated on further developments. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
