Inflation Continues To Slow

As we closed out 2022, consumer prices saw the biggest month-over-month drop since the start of the pandemic, according to the Bureau of Labor Statistics.

• M-O-M: The Consumer Price Index for All Urban Consumers fell 0.1% in December on a seasonally adjusted basis, down from November’s 0.1% increase and the lowest reading since April 2020.

• Y-O-Y: Consumer prices year-over-year were up 6.5% in December, down from 7.1% in November and the lowest reading since October 2021.

Slightly Better Than Expected. Economists were right about the annualized rate falling to 6.5% but they were slightly off on the month-over-month change which they believed would be unchanged in December.

The Core. Core prices fell as expected with the annual rate slowing to 5.7% (-0.3%) thanks to a month-over-month increase of 0.3% which is up slightly from the 0.2% change reported in November.

Food. Food prices saw a monthly increase of 0.3% in December, this is down from 0.5% in November and is the lowest increase since March 2021. The annual rate closed out 2022 at 10.4%, this is down from 10.6% last month and is the lowest level since June 2022.

• Cereal and bakery products lead all categories with prices up 16.1% year-over-year followed by dairy products (+15.3%), nonalcoholic beverages (+12.6%), and fruits & vegetables (+8.4%).

Energy. Energy prices saw the biggest monthly drop since October with a 4.5% drop which puts the annual rate at 7.3%, this is the lowest reading

• Gas prices fell 9.4% in just December and on a year-over-year basis, prices are now down 1.9%. Unfortunately, the drop in gas prices was offset by rising electricity costs which were up 1.0% for the month and are now up 14.3% year-over-year

Housing. Shelter costs continued to rise ending the year up 7.5% thanks to a 0.8% increase in December. This ties the highest monthly increase on record (set back in October) and is the highest annual rate since they began tracking this data.

Analysis. Neil Irwin of Axios noted on Twitter that the inflation story of 2022 is a bifurcated one. “In the final three months of 2022, core inflation was running at a 3.1% annual rate, which is a little on the hot side but hardly crisis-level inflation. That number was 7.9% for Q2 2022.”