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Inflation drops one tenth in December to 6.5% and fuels hope that the economy can avoid a recession


The goods and services price index relaxes for the sixth consecutive month and opens the door for the Federal Reserve to stop raising interest rates.

The prices of goods and services fell one tenth in December, relaxing year-on-year inflation to 6.5%, as reported by the Labor Department on Thursday, which constitutes relief for the economy of homes and businesses, opens the door for the Reserve Federal to slow the rise in interest rates, and feeds the hope that the United States can avoid a recession.

The data shows a significant reduction compared to the figure reached in November (7.1%), and shows a sign that the streak of price increases registered in recent months (of 9.1%) is slowly weakening. the worst in four decades.

An even more positive sign is the “core” price indicator (which excludes volatile energy and food costs): it was up just 5.7% from a year earlier.


Federal Reserve

(Fed) closely follows underlying prices to set its interest rates, as it believes it is

a more accurate indicator of future inflation


Another modest rise in core prices increases the likelihood that the Fed will raise its benchmark rate by just a quarter point, rather than a half point, when it concludes its next meeting on February 1.

What the new data releases show in particular is that inflation is beginning to moderate significantly, helped by several factors such as

lower prices at gas stations, discounts at clothing stores during the holiday season and cheaper airfares


According to the American Automobile Association (AAA), the national median price of a gallon of gasoline fell from $5 in June to $3.27 on Wednesday.

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Supply chain issues, which previously inflated the cost of products, have been largely resolved.

Consumers have also shifted much of their spending away from physical goods toward services, such as travel and entertainment.

As a result, the price of goods, including used cars, furniture, and clothing, has fallen for two consecutive months.

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However, the question for specialists is how quickly and how completely it will return to normal after a year and a half of unusually high increases.

Last week's employment report reinforced the possibility of

avoiding a recession.

Even after the Federal Reserve's seven interest rate hikes last year and with inflation still high, employers created 223,000 jobs in December, and the unemployment rate fell to 3.5%, matching the lowest level of the last 53 years.

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At the same time,

average hourly wage growth has slowed

, which should reduce pressure on companies to raise prices to cover their higher labor costs.

"The soft-landing talk has gained some credibility this year, and that's also led to a rally in the stock market," Michael Arone, chief investment strategist at State Street Global Advisors, told The Associated Press news agency.

Another positive sign for the Federal Reserve's efforts to quell inflation is that Americans generally expect price increases to subside in the coming years.

This is important because

so-called "inflation expectations" can be self-fulfilling

: if people expect prices to continue to rise sharply, they will typically take actions, such as demanding higher wages, that can perpetuate high inflation.

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The Federal Reserve Bank of New York stated Monday that consumers now expect 5% inflation for next year.

This is the lowest expectation in almost 18 months.

Over the next five years, consumers expect average inflation of 2.4%, just above the 2% target set by the Federal Reserve.

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Even so, in their statements in recent weeks, Federal Reserve officials have stressed

their intention to raise their benchmark short-term interest rates by

three-quarters of a point more in the coming months, to just above 5%. .

These increases would be added to the seven of last year, which almost doubled mortgage rates and made loans for automobiles and companies more expensive.

Last week James Bullard, president of the Federal Reserve Bank of St. Louis, expressed some optimism that this year "actual inflation will likely follow inflation expectations to a lower level," suggesting that 2023 could be a " year of disinflation.

Source: telemundo

All news articles on 2023-01-12

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