The pace of inflation probably held steady last month, in a report that comes as the Federal Reserve weighs cutting interest rates.
Fresh inflation data could show an intact, albeit bumpy, cool-down.
Consumer price data set for release Thursday morning is expected to provide Federal Reserve policymakers, the White House and American households with fresh evidence that inflation has continued to slow. Yet some of the report’s details could also show bumps in that progress — a cautionary reminder that it is too early to declare victory in the fight against rapid price increases.
The Consumer Price Index, an inflation measure produced by the Labor Department, is set for release at 8:30 a.m. Eastern. The Fed sets its inflation target — 2 percent per year — based on a separate measure, but this one is related and more timely. It will give economists the first clear glimpse at how inflation was behaving as 2023 came to a close.
Inflation overall probably climbed slightly more quickly in December than November on a yearly basis: 3.2 percent, economists in a Bloomberg survey expect, versus 3.1 percent previously. That uptick is likely to come as energy prices weigh less heavily than they did in November.
But after stripping out volatile food and fuel prices to get a sense of the underlying inflation trend, a “core” inflation measure probably climbed 3.8 percent in the year through December, down from 4 percent previously. That would be the first time the core index has dropped below 4 percent since May of 2021.
Continued progress on lowering inflation would be welcome news to central bankers and President Biden after nearly three years of rapid price increases that have pushed up costs for consumers and strained many household budgets.
Fed officials have raised rates considerably to slow the economy and try to wrestle inflation under control: Their main policy rate now stands at 5.25 to 5.5 percent, up from near-zero as recently as early 2022. But with inflation cooling, central bankers could begin to lower interest rates this year.
Their task is to balance two goals. On one hand, they want to make sure that inflation is coming fully under control. On the other, they do not want to keep borrowing costs too high for too long, risking a recession that would cost jobs and push up unemployment.
Policymakers have signaled that they could cut interest rates three times this year. They are not yet willing to fully rule out the possibility of another rate increase before they reverse course, but investors and many economists think that their next move will be to reduce rates — perhaps as soon as March.
For consumers, the decline in inflation means that prices for many everyday purchases — from goods like furniture to services like rent — are no longer climbing as sharply. Some products, like used cars, are actually coming down in price, although for the most part, price levels remain higher than they were a few years ago.
Still, wages are climbing at a solid pace, which should help consumers to catch up. Average hourly earnings have been climbing faster than the overall Consumer Price Index since last summer, on a yearly basis.
