WASHINGTON — The US inflation report for December being released on Thursday could provide another welcome sign that the worst bout of spiking prices in four decades is slowly weakening, AP reported.
Or it could suggest that inflation remains persistent enough to require tougher action by the Federal Reserve.
Most economists foresee the more optimistic scenario: They think December marked another month in which inflation, though still uncomfortably high, continued to cool. According to a survey by the data provider FactSet, analysts have predicted that consumer prices rose 6.5 per cent in December compared with a year earlier. That would be down from 7.1 per cent in November and well below a 40-year high of 9.1 per cent in June.
On a month-to-month basis, the economists think prices were flat in December. Even more significant, a closely watched gauge of “core” prices — which excludes volatile energy and food costs — is expected to have risen just 0.3 per cent from November to December and 5.7 per cent from a year earlier. The Fed closely tracks core prices, which it sees as a more accurate indicator of future inflation, in setting its interest rate policies.
Another modest rise in core prices would increase the likelihood that the Fed would raise its benchmark rate by just a quarter-point, rather than a half-point, when its next meeting ends February 1.
For now, inflation is falling, with the national average price of a gallon of gas declining from a $5 a gallon peak in June to $3.27 a gallon as of Wednesday, according to AAA.
Supply chain snarls that previously inflated the cost of goods have largely unraveled. Consumers have also shifted much of their spending away from physical goods and instead toward services, such as travel and entertainment. As a result, the cost of goods, including used cars, furniture and clothing, has dropped for two straight months.
Economists will pay particular attention on Thursday to the prices of services, which are seen as a stickier component of inflation. They reflect rising wages among labour-intensive businesses such as restaurants, hotels and health care companies.
If the data show only a small increase in services costs, that would likely strengthen hopes that the economy can avoid recession and instead experience a “soft landing.” Such a scenario would mean slow growth and likely a small rise in unemployment but much less economic pain than a full-fledged recession.
