Inflation cooled slightly in December though it remains above Fed's target

"Inflation cooled a bit last month as prices for gas and used cars fell, a sign that stubbornly elevated cost pressures are slowly easing. Consumer prices rose 0.3% in December from the prior month, the Labor Department said Tuesday, the same as in November. Excluding the volatile food and energy categories, core prices rose 0.2%, also matching November's figure. Increases at that pace, over time, would bring inflation closer to the Federal Reserve's target of 2%."

"Signs that inflation is cooling could make it more likely that the Federal Reserve will reduce its key interest rate later this year, which could translate into lower borrowing costs for mortgages, auto loans, and credit cards. Even so, the large price increases in recent years for necessities such as groceries, rent, and utilities have left many American households feeling squeezed, turning affordability issues into high-profile political concerns. Food prices have jumped about 25% since the pandemic."

Consumer prices rose 0.3% in December from the prior month, matching November, while core prices excluding food and energy rose 0.2%. Falling gas and used car prices contributed to cooling inflation. Manufactured goods prices were flat, suggesting a waning tariff impact. Data interpretation was complicated by a recent six-week government shutdown, but recent figures suggest inflation has peaked. Cooling inflation raises the probability that the Federal Reserve may lower its key interest rate later in the year, potentially lowering mortgage, auto loan, and credit card borrowing costs. Despite easing, substantial price gains for groceries, rent, and utilities have left many households feeling financially squeezed.

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