Consumer price data released Thursday showed Federal Reserve officials, the White House and American households that inflation continued to slow at the end of 2023, capping a year in which the price increases bedeviling families and policymakers cooled in earnest.
Prices overall climbed more quickly in December than November on a yearly basis: 3.4% versus 3.1% previously, which was more than economists in a Bloomberg survey had forecast.
But after stripping out volatile food and fuel prices to get a sense of the underlying inflation trend, a “core” price measure climbed 3.9% in the year through December, down from 4% previously. That marked the first time the core index has dropped below 4% since May 2021.
The data underscore that while inflation remains faster than usual — and month-to-month bumps are still likely as gas prices and other volatile costs fluctuate — the measure is making progress back toward a normal pace. That is likely to come as welcome news to central bankers and President Joe Biden after nearly three years of rapid price increases that have pushed up costs for consumers and strained many household budgets.
“We’ve seen how the data can be bumpy,” said Gregory Daco, chief economist at EY-Parthenon. “The important dynamic is really at the core level, and what we’re seeing at the core level on a three- or even six-month basis is really encouraging.”
Some of the underlying details could keep Fed officials wary as they look ahead to 2024. A slowdown in rent for new leases is trickling through the broader housing market only gradually. And while some goods and service costs are cooling notably, price tags on products such as vehicle insurance continue to increase fairly steeply.
But many economists do expect inflation to continue to moderate in the months ahead as an expected cooldown in shelter price increases materializes and as the economy overall settles back into a more normal pattern.
Whether that happens will shape what comes next from policymakers at the Fed.
With inflation cooling, central bankers could begin to lower interest rates to more normal levels this year.