From housing to energy to food, US inflation picks up, though some costs rise only mildly
WASHINGTON — Higher energy and housing prices boosted overall U.S. inflation in December, a sign that the Federal Reserve’s drive to slow inflation to its 2% target will likely remain a bumpy one.
Thursday’s report from the Labor Department showed that overall prices rose 0.3% from November and 3.4% from 12 months earlier. Those gains exceeded the previous 0.1% monthly rise and the 3.1% annual inflation in November and were slightly above economists’ forecasts.
More than half the increase in prices from November to December reflected higher housing costs. Energy costs, along with food prices, also contributed to inflation.
Excluding volatile food and energy costs, though, so-called core prices rose just 0.3% month over month, unchanged from November’s increase. Core prices were up 3.9% from a year earlier — the mildest such pace since May 2021. Economists pay particular attention to core prices because, by excluding costs that typically jump around from month to month, they’re seen as a better guide to the likely path of inflation.
Inflation has cooled more or less steadily since hitting 9.1% in mid-2022. Still, despite the slowdown in price increases, along with steady economic growth, low unemployment and healthy hiring, polls show many Americans are dissatisfied with the economy
That disconnect, a likely issue in the 2024 elections, has puzzled economists and political analysts. A major factor is the lingering financial and psychological effects of the worst bout of inflation in four decades. Much of the public remains exasperated by higher prices. Prices are still 17% higher than they were before the inflation surge began and are still rising.
Pollsters and economists say there’s never been as wide a gap between the underlying health of the economy and public perception. Wage gains have outpaced inflation in recent months, meaning that Americans’ average after-inflation take-home pay is up. Yet a poll conducted in November by The Associated Press-NORC Center for Public Affairs Research, about three-quarters of respondents described the economy as poor. Two-thirds said their expenses had risen.
“Our grocery bill has doubled,” said Megan Cherry, a psychologist who lives with her husband and children in Temple Terrace, Florida. “We’ve got to change how much we get of each thing. Our kids noticed recently that, ‘Wow, we eat a lot of chicken.’ Well, because we can afford chicken.”
Thursday’s figures reflected the outsize role that housing plays in the U.S. consumer price index — roughly a third of the index. A measure of homeownership alone makes up about 25% of CPI. The government measures homeownership costs by calculating how much rent a homeowner would likely charge if that home were being rented, a figure seen as equivalent to the cost of owning the property. Overall housing prices rose 0.5% from November to December. Rents were up 0.4%, homeownership 0.5%.
Over the past year, consumers have enjoyed price declines for some individual items. Furniture and bedding prices are down 4%, for example. Men’s suits and coats are 6% lower, televisions 10%, sausages nearly 4%.
The Fed, which began aggressively raising interest rates in March 2022 to try to slow the pace of price increases, wants to reduce year-over-year inflation to its 2% target level. And there are solid reasons for optimism that inflationary pressure will continue to recede in the coming months.
