Finance

Here’s the inflation breakdown for December 2023 — in one chart


Consumers shop in Rosemead, California, on December 12, 2023.

Frederic J. Brown | Afp | Getty Images

The annual inflation rate edged higher in December following two months of declines. However, that reversal likely isn’t cause for concern — and may be somewhat misleading, economists said.

“We’re still making progress in the inflation fight,” said Sarah House, senior economist at Wells Fargo Economics.

The consumer price index rose 3.4% last month relative to a year earlier, the U.S. Labor Department reported Thursday. That’s a larger increase than the 3.1% in November and 3.2% in October.

The index has fallen by half since December 2022 — when the inflation rate was 6.5% — and has declined significantly from the 9.1% pandemic-era peak in June 2022.

Consumers’ buying power also increased over the past year: Hourly wages after accounting for inflation — so-called “real earnings” — rose by 0.8% from December 2022 to December 2023, according to the Labor Department.

Inflation is ‘moving in the right direction’

The CPI, a key inflation gauge, measures how fast the prices of everything from fruits and vegetables to haircuts and concert tickets are changing across the U.S. economy.

Lower energy prices had helped pull down the overall index in recent months but didn’t provide as much relief to consumers in December, economists said.

Further, so-called “base effects” made the latest yearly CPI reading seem somewhat distended, economists said. This term refers to how fluctuations in the monthly inflation rate can influence the magnitude of an annual change.

More from Personal Finance:
Deflation vs. disinflation: One is ‘the more ideal outcome’
Why workers’ raises are smaller in 2024
What to consider before paying for a dating app

Basically, there was an “unusually small” monthly increase (0.1%) in prices from November 2022 to December 2022, said Andrew Hunter, deputy chief U.S. economist at Capital Economics. Meanwhile, CPI rose by 0.3% from November 2023 to December 2023 — and that difference was enough to increase the year-over-year comparison.  

For this reason, monthly figures often provide a more accurate gauge of inflation trends relative to the annual reading — and the monthly indicators are “still moving in the right direction,” Hunter said.

Where inflation jumped in December

Shelter prices rose 6.2% over the past year. As the largest piece of the average household’s budget, shelter accounted for more than two-thirds of the CPI’s increase since December 2022, according to the Labor Department.

Other categories with “notable” increases over that time include motor vehicle insurance (prices of which jumped by 20.3%); recreation, such as admissions to concerts and sporting events (2.7%); personal care, such as haircuts (5%); and education costs, like tuition and daycare (2.4%), the Labor Department said.

Meanwhile, prices have leveled out — or even declined — in some categories. Largely, that trend has occurred in physical goods like new and used cars, household furnishings, recreational goods (such as toys, televisions and musical instruments), and education and communication commodities (like computers and college textbooks), economists said.

For example, prices of used cars and trucks decreased 1.3% since December 2022. Those of household appliances fell by 4%, while those for dishes and flatware declined 2% and those for men’s suits, sport coats and outerwear by 6%.

Broadly, that easing is attributable to “an unwinding of the pandemic-era supply shortages,” Hunter said. Supply-chain bottlenecks and elevated consumer demand had fueled those shortages.

Meanwhile, seasonally adjusted gasoline prices rose by 0.2% from November to December, whereas they’d declined by 6% and 5% in November and October, respectively. They’re down 1.9% over the year.

Food inflation also moderated, as grocery prices rose by an annual 1.3% in December compared to 1.7% in November. There have been signs of consumers doing more bargain-hunting at grocery stores, which have in turn gotten somewhat more competitive in pricing to woo consumers, House said.

While shelter inflation has been stubbornly high, it’s expected to fall in coming months since marketplace rents have been flat to down, said Mark Zandi, chief economist at Moody’s Analytics. It takes time for those dynamics to feed through into the Labor Department’s CPI calculations, he said.

“What’s important for most Americans is the cost of staples — the cost of a gallon of regular unleaded gasoline, and food and rent — those things are moving in the right direction,” Zandi said.

While food and housing prices are “still very elevated” relative to two to three years ago, consumers can “take some solace that they’re no longer rising,” he said.



READ SOURCE

This website uses cookies. By continuing to use this site, you accept our use of cookies.