Inflation, as measured by producer wholesale prices, slowed to 6.2% for the year ending in December, according to a report from the Bureau of Labor Statistics.
That year-over-year inflation rate was down from 7.1% the month before, lower than what forecasters expected.
Looking at the past several months, it appears as though inflation (as measured by the producer price index) peaked and is on its way down, which is good news for President Joe Biden, whose approval ratings have been undercut by soaring costs for households. Prices declined outright, by 0.5%, between November and December (as opposed to on an annual basis), Wednesday’s report showed.
“In short, headline PPI was weaker than expected in December. And the year-on-year changes decelerated across measures. Overall, while inflation is elevated, producer prices are off their peaks and are moving in the right direction,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
Annual wholesale inflation reached its zenith in March, clocking in at 11.7%, but it has now been in retreat for the past few months. Trends in producer prices eventually trickle down to households.
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Meanwhile, the consumer price index, which is a more closely watched gauge of inflation, declined to 6.5% last month, which, while lower, is still more than three times higher than the Federal Reserve’s preferred 2% rate.
The Fed has been aggressively raising interest rates this year in an effort to tame inflation. The central bank raised rates by half of a percentage point last month after several months of even more aggressive hikes to the tune of 0.75 percentage points.
The central bank’s rate target is now 4.25% to 4.50%, the highest it has been since before the financial crisis in 2008. A survey of Fed participants released after the meeting shows that most foresee the target rate rising from 5% to 5.25% in 2023.
The rapidly rising rates have stoked recession fears, with most economists now predicting that there will be at least a mild recession at some point this year.
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Still, the strong labor market has been a saving grace for the economy.
The economy added 223,000 more jobs in December, the Bureau of Labor Statistics reported last week, and the number of people applying for jobless claims each week (a forward-looking indicator of the labor market weakening) also shows no evidence of seriously increasing.
