December's increase in total U.S. inflation was mostly driven by rising energy and housing costs, suggesting that the Federal Reserve's efforts to bring inflation down to its target of 2% will probably not be easy.
The Labor Department released a report on Thursday that said total prices increased 3.4% from a year ago and 0.3% from November. These increases were somewhat higher than expected by experts and outpaced both the previous month's 0.1% increase and November's 3.1% annual inflation rate.
(Photo : by Drew Angerer/Getty Images)December's increase in total U.S. inflation was mostly driven by rising energy and housing costs, suggesting that the Federal Reserve's efforts to bring inflation down to its target of 2% will probably not be easy.
The cost of housing increased, accounting for almost half of the price rise between November and December. Inflation was also influenced by food prices and energy expenses.
So-called core prices, which do not include the volatile expenses of food and energy, increased by 0.3% month over month in November but were stable otherwise. Core prices increased 3.9% over the previous year, which is the slowest rate of increase since May 2021. Because core prices do not include expenses that fluctuate significantly from month to month, they are thought to provide a more accurate indication of the expected trajectory of inflation, which is why economists pay close attention to them.
Since peaking at 9.1% in the middle of 2022, inflation has decreased rather gradually. Still, surveys reveal that a large number of Americans are unhappy with the state of the economy, even in spite of the halt in price rises, sustained economic growth, low unemployment, and robust hiring.
Political analysts and economists are perplexed by this mismatch, which is expected to cause problems in the 2024 elections. The residual financial and psychological repercussions of the worst inflation in four decades are a significant contributing element. The majority of people are still irritated by price increases. Prices continue to rise and are now 17% higher than they were before to the start of the inflation wave.
Discrepancies in Economic Assessment and Factors Influencing Inflation
Economists and pollsters claim that the difference between the public's perception and the underlying state of the economy is greater than it has ever been. In recent months, wage growth has exceeded inflation, increasing Americans' average take-home income after inflation. However, in a November survey by The Associated Press-NORC Center for Public Affairs Research, over 75% of participants said the economy was in bad shape. Of these, two-thirds reported an increase in costs.
The data released on Thursday demonstrated the disproportionate weight-roughly one-third-that housing bears in the U.S. consumer price index. About 25% of the CPI is comprised solely of a measure of homeownership.
In order to determine how much homeownership costs, the government estimates the amount of rent a homeowner would probably charge if their house were for rent; this amount is seen to be comparable to the cost of property ownership. The overall price of homes increased by 0.5% in December over November. Ownership increased by 0.5% and rents by 0.4%.
Customers have benefited from price reductions for a few specific products during the previous year. For example, costs for bedding and furniture have decreased by 4%. Suits and jackets for men are down 6%, TVs are down 10%, athletic items are down around 3%, and sausages are down about 4%.
In an effort to restrict the rate of price rises, the Fed started hiking interest rates rapidly in March 2022. Its goal is to bring year-over-year inflation down to its objective of 2%. Furthermore, there are many grounds to be optimistic that the pressure on inflation will continue to decline in the upcoming months.
For instance, the Federal Reserve Bank of New York revealed this week that consumers now see inflation to be as low as 3% for the upcoming year-the lowest level since January 2021. This is significant because consumer expectations are seen to be a reliable indicator of future inflation since they tend to make hasty purchases earlier rather than later when they anticipate that prices will continue to rise. That spending frenzy usually leads to higher inflation.
