US inflation continued to slow in December, confirming that price pressures had peaked and prompting the Federal Reserve to slow the pace of interest rate hikes again.
The overall consumer price index fell 0.1% from the prior month, with cheaper energy costs fueling the first decline in 2 1/2 years, according to a Labor Department report Thursday. The figure was up 6.5% from a year earlier, the lowest since October 2021.
Excluding food and energy, the so-called core CPI rose 0.3% last month and was up 5.7% from a year earlier, the slowest pace since December 2021. Economists see the gauge — known as the core CPI — as a better indicator of underlying inflation than the headline measure.
The data, combined with lower-than-expected values from previous months, indicate more consistent signs that inflation is declining and could pave the way for the Fed to move up a quarter point at its next meeting, which ends Feb. 1. That said, the central bank's job is far from over.
Sustained consumer demand, especially for services, combined with tight labor market conditions threaten to keep upward pressure on prices.
The dollar index has responded by falling:
The Fed is expected to raise interest rates further before pausing to assess how the most aggressive tightening cycle in decades is affecting the economy. Policymakers are stressing the need to keep rates elevated for quite some time and cautioning against underestimating their desire to do so. Investors are still betting that the central bank will cut rates by the end of the year, despite officials saying otherwise.
Shortly after the report was released, Philadelphia Fed President Patrick Harker said that the central bank should lift interest rates in quarter-point increments "going forward," as it nears the end point of its hiking campaign.