As 2023 came to a close, underlying price pressures in the United States likely continued to diminish, bolstering the Federal Reserve’s optimism regarding the trajectory of inflation.
Economists favor the consumer price index excluding food and petroleum as a more accurate indicator of underlying inflation. In December, this index is anticipated to have increased 3.8% year-over-year.
That would be the least annual increase since May 2021, and it demonstrates the Fed’s progress in curbing inflation, which surged at the quickest rate in four decades during 2022.
Although price growth remains above the target set by the central bank, the most recent report from officials’ December meeting indicated policymakers recognize that interest rates have probably reached their highest point and are open to reducing borrowing expenses this year.
Simultaneously, according to the meeting minutes, officials “reaffirmed that it would be appropriate for policy to maintain a restrictive stance for some time until inflation was clearly declining sustainably.”
According to Bloomberg Economics:
“While we anticipate that deflation in the prices of essential goods will continue to weigh on headline and core, that source of disinflation will diminish in the coming months if companies are successful in destocking their inventories,” Core CPI inflation is anticipated to remain elevated above the Federal Reserve’s average inflation objective of 2% until 2024, notwithstanding the deceleration in housing inflation.
—Economists Anna Wong, Stuart Paul, Eliza Winger, and Estelle Ou. To view the complete preview, click here.
Thursday’s CPI report from the government will be succeeded the following day by the producer price index. Annually, the measure of wholesale inflation, which excludes food and energy, is anticipated to decrease as well.
US central bankers including Atlanta Fed President Raphael Bostic and New York Fed President John Williams are scheduled to address in the coming week.
