Headline
Title: Inflation Rises to 2.9% in December, Highest since July as Forecasted
December saw an inflation surge, as high as the summer, according to recent data, signaling persistent price hikes for consumers. Although economists anticipated an inflation spike, this latest figure is noteworthy.
Highlights
Inflation clocked in at 2.9% in December, as per the Bureau of Labor Statistics' annual consumer price index measurement, which is the most frequently cited inflation indicator. Furthermore, the index escalated 0.4% between November and December after seasonal adjustments.
Analyst predictions saw annual inflation of 2.9%, while forecasting a 0.3% rise in inflation month-on-month. December's inflation rate marks the highest annual reading since July, which also stood at 2.9%.
Core inflation, excluding volatile food and energy items, climbed to 3.2% in December, contrary to estimates of 3.3%, which persisted from September to November. However, this figure still overshoots the Federal Reserve's long-term target of 2%.
The well-above-target core inflation can primarily be attributed to last month's energy-driven inflations. Specifically, the index's gasoline price component rose a considerable 4.4% per month.
Gas Price Surge
The December spike in gas prices might come as a shock to drivers who have witnessed a downward trend in gas prices at the pump following Russia's invasion of Ukraine. Despite this, several variables contribute to the seemingly paradoxical consumer price index report.
The Bureau of Labor Statistics’ seasonal adjustment for gas prices indicates a 1.1% decline from November to December in raw data, but by measuring CPI, the calculated decrease is actually 4.4%. This decrease was weaker than average, occurring due to the somewhat sluggish decline in gas prices last month, which coincided with a climb in crude oil prices.
West Texas Intermediate (WTI) crude prices grew by 5% during December as investors prepared for possible Iranian oil sanctions from incoming U.S. President-elect, Donald Trump. CPI's gas metric dropped by 3.4% compared to December 2022.
Gleaning Insights
- Inflation has grown partly due to the turn of the year and subsequent price increases, according to Goldman Sachs economists.
- Prices took a significant turn in 2021 after COVID-19 lockdown orders, eventually reaching a 41-year high, but slowly decreased over the past two and a half years.
- Inflation has been a subject of significant concern in the U.S. economy for the past few years, influencing both consumer wallets and economic policies.
The December CPI reading of 2.9% aligns with economists' predictions for annual inflation, but the month-on-month increase of 0.4% is noteworthy and contributes to the overall inflation surge. Furthermore, the core inflation, excluding volatile food and energy items, reached 3.2% in December, surpassing the Federal Reserve's target of 2%.
