Inflation eased substantially for a third month in December as falling gasoline prices and softening growth in food bills offset further increases in rents.

Consumer prices rose 6.5% from a year earlier, up from 7.1% in November and a 40-year high of 9.1% in June, according to the Labor Department’s Consumer Price Index, a measure of what people pay for goods and services that jobs released on Thursday.

Last month’s growth represented the slowest annual gain since October 2021 and matched economists’ estimates.

CPI month-on-month
Month-on-month, consumer prices fell 0.1%, the first decline since May 2020.

What does core CPI mean?
Core prices, which exclude volatile food and energy items and better reflect longer-term trends, rose 0.3% from November after a 0.2% increase the previous month. This reduced the annual increase from 6% to 5.7%, the smallest advance for the year.

“This month’s report confirms that the decline in inflationary pressures is becoming more robust,” Morgan Stanley wrote in a note to clients.

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Inflation eased substantially for a third month in December 2022 as falling gasoline prices and softening growth in food bills offset further increases in rents.
Historical rates of inflation
Americans have been facing a historic spike in inflation since the spring of 2021 as the easing pandemic boosted consumer demand even as supply chain disruptions caused product shortages. The surge has led the Federal Reserve to raise interest rates aggressively to beat inflation in a campaign that threatens to plunge the nation into recession this year.

However, price growth has been slowing down in recent months.

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Where inflation is slowing
In general, prices for goods such as used cars and furniture have declined or stabilized as supply chain issues caused by COVID-19 have improved and demand has fallen. But the cost of services has risen as more Americans return to travel and other activities, even as persistent labor shortages push up wages.

Fed Chairman Jerome Powell says the Fed won’t be sure that inflation is slowing sustainably — allowing it to hold off on raising interest rates — until wage increases in service industries slow.

Nevertheless, the central bank is proceeding more cautiously. Markets expect the Fed to return to a quarter-percent rate hike early next month after a half-point hike in December.

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Inflation has now moderated since July, but its decline has accelerated in the past three months. And price growth is expected to continue to slow dramatically in 2023. Barclays expects annual inflation to reach 2.6% by the end of the year, slightly above the Fed’s 2% target.

S&P 500
Major stock indexes rose slightly on Thursday after the inflation report. The S&P 500, On the broadest market gauges, ros 5 points, or less than 1%. The Dow Jones Industrial Average rose 136 points, a similar percentage gain. Stocks moved higher this week on expectations that CPI would continue to build on November’s decline.

Why are gas prices falling so fast?
In December, gas prices fell for the fifth time in six months amid growing fears of a global recession and lower demand for oil. Pump prices fell by 9.4%. Regular unleaded gasoline averaged $3.27 a gallon’s on Wednesday, down from about $5 in June, according to AAA.

“That helps,” Cheryl’s Stewart of Perryyy Hall, Maryland, said of the recent decline. “It will certainly free up money for something else.”

Stewart says the savings have allowed her to resume her morning ritual of stopping for coffee at Dunkin Donuts or Starbucks on the way to work.

But he says food prices are still too high. “I’m very shocked to see the price of a dozen eggs over $4,” says Stewart.

So she stopped buying eggs and chicken wings, the price of which also increased.

To better cope with the high cost of food, Stewart, a university public relations manager, started working part-time for 15 hours a week, allowing her and her family to travel more.

Egg prices
Food prices are still rising, but more slowly, up 0.2% from November and up 11.8% over the past year. The cost of commodities such as wheat and corn have fallen in recent months thanks to easing global demand.

In December, the price of eggs jumped 11.1% and is nearly 60% higher than a year ago as bird flu continues to reduce chicken supplies. Breakfast cereal prices rose 1.1% and 13% over the previous year. Rice grew by 0.5% and 15.4% year-on-year. And bread rose slightly by 0.2% and was 15.9% more expensive than a year earlier.

But some food costs, which had been rising sharply, have receded. Bacon fell 2.9%; chicken, 0.6%; fresh fish and seafood, 1%; and undercooked ground beef, 0.1%, the latest in a series of declines.

Some other costs kept rising. Rents jumped by 0.8% month-on-month and by 8.3% over the past year. Economists expect rents to fall on new leases, but not until later this year. Auto repair prices rose 1% and 13% annually. And the cut price increased by 0.3% and 6.3% from the previous year.