Inflation in the US ends 2022 down

It will be important to watch the progress of the services and housing costs subcomponent of the underlying component, since, if it continues to rise, it would continue to exert pressure on headline inflation.”

Base Bank

The United States ended 2022 with good news, the Consumer Price Index (CPI) registered its sixth consecutive decrease in December, settling at 6.5% at the annual rate, a drop of 0.6 percentage points compared to November and the lowest figure since October 2021 when it stood at 6.2 percent, the Labor Department reported yesterday.

As in previous months, the fall in inflation was mainly due to the decline in energy prices, which in July registered a maximum of 41.6% and decreased to 7.3% last month. On a monthly basis, energy costs decreased 4.5 percent.

However, the war in Ukraine continues and risks remain from the US government’s decision in March last year to ban imports of oil, natural gas and coal from Russia.

Another factor that also contributed to the moderation of inflation were the prices of used cars and trucks, whose decrease was 8.8% at an annual rate and 2.5% monthly.

For its part, the so-called core inflation, that which excludes food and energy, also showed a slowdown for the third month in a row, going from 6.0% annual in November to 5.7% in December, when in September it registered a maximum of 6.6 percent. . At the monthly rate, the core CPI advanced 0.3 percent.

Sun Won Sohn, a professor of finance and economics at Loyola Marymount University in Los Angeles, told Reuters that the top of the inflation mountain is behind us, but the question is how steep the downhill is. “Certainly, the efforts of the Federal Reserve have begun to bear fruit, although it will be a while before we reach the promised land of a 2 percent inflation rate.”

Food, not low enough

Despite this decline in prices, food costs have been slower to release pressures. This component closed the year with an annual rise of 10.4%, barely 1.0 percentage point below the maximum registered in August, while monthly they had an increase of 0.3 percent.

Food for home consumption had an increase of 11.8% at 12 months and 0.2% monthly, meat, poultry, fish and eggs were the only ones that had a monthly increase of 1.0%; fruits and vegetables fell 0.6%; dairy products and their derivatives 0.3%, while cereals and bakery products remained unchanged.

Increase in services, worries

The services sector is still strongly affected by high prices, since it added 16 months of acceleration, going from 2.7% at the annual rate in August 2021 to 7.6% last month, the highest figure on record.

Housing costs (belonging to the service sector) is a pending factor to achieve price stability, since they had an annual increase of 7.5 percent and a monthly increase of 0.8 percent.

Ryan Sweet, chief US economist at Oxford Economics, explained to the AFP agency that this continued rise in the prices of services is worrying.

“It is a source of inflation that has not yet reached its ceiling. The key question this year is whether the decline in goods prices will offset the rise in services in the first half of the year,” Sweet clarified.

Michael R. Strain, director of Economic Policy Studies and a Senior Fellow at the American Enterprise Institute, cautioned that Americans don’t have to be too enthusiastic about the Labor Department report.

“Inflation for basic services grew faster in December than in November. Inflation comes from basic services, which have not slowed down yet. The Federal Reserve has to keep working to reach its 2% target, the economist wrote on his Twitter account.

War in Ukraine, risk

According to Banco Base estimates, inflation in the United States will close 2023 at 3.1% compared to the 3.8% previously forecast, the main upward risk factor being the war in Ukraine, since it can cause sudden fluctuations, especially over the energy and grain prices.

“On the other hand, it will be important to observe the progress of the subcomponent of services and housing costs of the underlying component, since, if it continues to rise, it would continue to exert pressure on general inflation,” explained the bank.

luis.benitez@eleconomista.mx