Toronto Star Referrer

Inflation and consumer spending cooled in December across U.S.

Trends suggest interest rate hikes are working, but it may not be enough

CHRISTOPHER RUGABER

The Federal Reserve’s preferred inflation gauge eased further in December, and consumer spending fell — the latest evidence that the Fed’s series of interest rate hikes are slowing the economy.

Friday’s report from the Commerce Department showed that prices rose 5 per cent last month from a year earlier, down from a 5.5 per cent year-over-year increase in November. It was the third straight drop.

Consumer spending fell 0.2 per cent from November to December and was revised lower to show a drop of 0.1 per cent from October to November. Last year’s holiday sales were sluggish for many retailers, and the overall spending figures for the final two months of 2022 were the weakest in two years.

The pullback in consumer spending will likely be welcomed by Fed officials, who are seeking to cool the economy by making lending increasingly expensive. A slower pace of spending could boost their confidence that inflation is steadily easing.

Still, the decline in year-over-year inflation matches the Fed’s outlook and isn’t likely to alter expectations that it will raise its key rate by a quarter-point next week.

On a monthly basis, inflation ticked up just 0.1 per cent from November to December for a second straight month. Energy prices plunged 5.1 per cent, and the overall cost of goods also fell.

“Core” prices, which exclude volatile food and energy costs, rose 0.3 per cent from November to December and 4.4 per cent from a year earlier. The year-over-year figure was down from 4.7 per cent in November, though still well above the Fed’s 2 per cent target.

Falling prices for oil, gas, copper, lumber, wheat and other commodities, along with the unclogging of supply chains, have helped slow the retail costs of cars, furniture and clothes, among other items.

Price increases, though, have remained persistently high for some goods and services, including eggs, which skyrocketed 60 per cent last month compared with a year ago. Egg prices rose 11.1 per cent just in December, inflated by an outbreak of avian flu that has led to a culling of herds and higher feed costs.

Car rental prices soared nearly 27 per cent from a year ago and rose1.6 per cent just in December.

But for many other items, inflation is easing. Coffee prices, though up nearly 14 per cent in the past year, rose just 0.2 per cent last month. And the cost of clothes and shoes rose just 3 per cent in the past year and 0.3 per cent last month.

Friday’s figures are separate from the better-known inflation data that comes from the consumer price index. The CPI, which was released earlier this month, has also shown a steady deceleration.

“The latest data offer the first tangible signs that the economy’s main engine is slowing,” said Oren Klachkin, lead U.S. economist at Oxford Economics, referring to consumers, whose spending accounts for about 70 per cent of activity.

BUSINESS

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2023-01-28T08:00:00.0000000Z

2023-01-28T08:00:00.0000000Z

https://thestarepaper.pressreader.com/article/281827172902047

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