As 2024 drew to a close, inflationary pressures exhibited mixed signals. The Consumer Price Index (CPI), a critical gauge of inflation, recorded a 2.9% increase on an annual basis in December. This marked a notable change from the pandemic-era peak of 9.1% in June 2022. Despite this decline, December's inflation uptick was fueled by rising energy and food costs. Meanwhile, average hourly earnings grew at a rate of 3.9%, slightly down from November's 4%. The Federal Reserve continues to aim for a 2% annual inflation rate over the long term, underscoring the importance of these fluctuations.
Gasoline prices, although down more than 3% over the past year, experienced an unusual trend in December. While typically expected to fall during this period, gasoline prices actually increased by 4.4% from November to December. This anomaly was captured in the CPI as an inflation increase, according to recent data. Groceries saw an overall rise of 1.8% over the past year, with egg prices registering the most significant monthly increase at 3.2%. Similarly, airline fares climbed by 3.9% from November to December, adding to the inflationary dynamics.
Core inflation, which excludes volatile energy and food prices, showed signs of easing. The annual core inflation rate decreased slightly to 3.2%, down from 3.3%, while the core CPI fell to 0.2% on a monthly basis in December after being stuck at 0.3% since August. Housing inflation also saw a reduction, with the annual rate dropping to 4.6%, the lowest since January 2022.
Stephen Brown, deputy chief North America economist at Capital Economics, noted that consumer sentiment is being affected by anticipated policy changes.
"suggest that consumers are becoming more worried about the likely stagflationary impact of Trump's policy plans," said Stephen Brown.
He further added,
"The expectation of tariffs to come mean consumers judge that it is a better time to buy durable goods," he continued.
Despite these concerns, some experts remain optimistic about the overall inflation trend. Mark Zandi, chief economist at Moody's, expressed cautious optimism regarding the slowing inflation rates.
"It's encouraging that inflation continues to throttle back, slowly but steadily," stated Mark Zandi.
He emphasized that inflation is indeed slowing.
"That's now definitively slowing," he asserted.
Joe Seydl, a senior markets economist at J.P. Morgan Private Bank, echoed this sentiment and suggested that the Federal Reserve's target might soon be within reach.
"We're not that far away," noted Joe Seydl.
He projected that by the end of the year, inflation could align more closely with target rates.
"By the end of this year, we'd expect the year-over-year rates to be back in those targets," Seydl concluded.
The broader picture of December's inflation also highlights sector-specific trends. Car insurance prices rose by 0.4% on a monthly basis and have surged by 11% since December 2023. This increase reflects broader trends in insurance costs and their impact on household budgets.
Overall, CPI data for December paints a nuanced picture of inflationary trends across various sectors. Although gasoline prices fell from their pandemic highs on an annual basis, their atypical rise in December contributed to the month's higher inflation reading. Similarly, while groceries saw moderate annual increases, specific items like eggs experienced sharper hikes, influencing consumer spending patterns.
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