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Economic News

United States: Inflation Closes Out the Year Slightly Higher

January 11, 2024
Francis Généreux
Principal Economist

Highlights

  • The US consumer price index (CPI) rose 0.3% in December, after a modest 0.1% uptick in November and no change in October. Excluding food and energy, the gain was also 0.3%, as it was in November. The all items index increased 3.4% for the 12 months ending in December, up from 3.1% in November. The all items less food and energy index rose 3.9%, down from 4.0%.
  • On average, headline inflation came to 4.1% for 2023 as a whole—almost half the 8% rise recorded in 2022. Meanwhile, the all items less food and energy index clocked in at 4.8% in 2023, down from 6.2% in 2022.

Comments

The December uptick in inflation was a reminder that the fight against excessive price growth isn't over yet. On its own, the month-over-month increase in headline inflation wasn't that big and mostly reflects a slight increase in energy prices after the substantial price drops of previous months. What was disappointing was the resilience of prices excluding food and energy (although the monthly gain was in line with consensus expectations). The price trajectory will remain disappointing until core inflation starts showing more signs of weakness.

The problem isn't goods prices, which (excluding food and energy) stayed flat in December after falling for six straight months. The issue is service prices (excluding energy), which are still running too hot. Month-on-month, they advanced 0.4% in December, after growing 0.5% in November. The monthly gain hasn't fallen below 0.3% since June 2023. Monthly increases in rent (+0.4%) and owners’ equivalent rent (+ 0.5%) remain high. In addition, the cost of lodging away from home ticked back up in December after sliding for several months. However, it's worth noting that airfares fell once again (albeit less than in November), but medical care service prices climbed.

We can only hope that the weaker economic growth and slowdown in the labour market (especially the downturn in job vacancies) expected in early 2024 will cool services inflation. That's clearly what Federal Reserve (Fed) officials are counting on. They chose to pause interest rates at their last few meetings and will probably keep them at their current highs for another few months. 

Implications

Despite the progress made between 2022 and 2023, the December print was a reminder that bringing inflation back down to the Fed target will be tough. Over the next few months, CPI data, especially for services, will have to show even stronger declines for us to be sure that the battle is won. We therefore don't expect any Fed rate cuts in the first six months of 2024.