JANUARY 16, 2023 – INFLATION TICKS UP TO 3.4 PERCENT IN DECEMBER
The inflation rate rose in December to 3.4 percent from a year ago, a 0.3 percent rise from November, and a bit higher than expected. Though still well above the Fed’s target of 2 percent, inflation has remained below 4 percent since May. Wages, adjusted for inflation, were up 0.2 percent for the month, or 0.8 percent from a year ago.
Much of the increase in inflation last month was attributable to higher housing costs, up 0.5 percent for the month, 6.2 percent for the year. Fed officials believe shelter costs will decrease during 2024.
Despite the rise in inflation, traders still predict, with a 69 percent probability, the Fed will lower interest rates in March. The markets are hoping for six rate cuts this year, while the Fed has hinted at three. Fed officials have stated “restrictive” policy will remain in place for a while, and they would not hesitate to raise rates further should inflation pick up.
The Fed next meets on January 30-31 when it is unlikely that they will change rates. The Fed will be following inflation and the personal-consumption-expenditures index in the coming months before making any policy decisions.