Status: 01/12/2023 3:11 p.m
The upward trend in prices in the USA has eased off significantly. The inflation rate fell to 6.5 percent at the turn of the year. It is the sixth decline in a row. This means that the central bank can also slow down further.
Inflation in the United States weakened again towards the end of 2022. The inflation rate for goods and services fell to 6.5 percent in December from 7.1 percent in November, the US Labor Department said in Washington today.
Experts expect further weakening of inflation
The decline is the sixth in a row – fueling hopes that the wave of inflation in the world’s largest economy is abating. In June, consumer prices there had risen by 9.1 percent. Core inflation – excluding volatile energy and food prices – fell to 5.7 percent from 6.0 percent.
“Inflation rates will continue to fall over the coming months,” says Thomas Gitzel, Chief Economist at VP Bank. A range of four percent could soon be reached. Above all, the expected lower rent increase will push the inflation rates down considerably, according to the expert. In addition, there is a base effect due to the inflationary surge at the end of 2021 and beginning of 2022, according to Ulricht Wortberg from Helaba. In the euro zone, too, the rate of inflation had recently fallen further.
“The decline in the inflation rate was not a flash in the pan and will continue,” agrees Bastian Hepperle from the Hauck Aufhäuser Lampe bank. In June, the two before the comma could appear again for the first time in more than two years. At the same time, the analyst emphasizes: “The direction is right, but the inflationary pressure is still too high to calm the Fed.” The US Federal Reserve will therefore continue to tighten interest rates.
Central bank can ‘shift down a gear’
The rate of inflation in the USA is still well above the Federal Reserve’s target of 2.0 percent. The Fed raised interest rates by half a percentage point in December – to the new range of 4.25 to 4.50 percent. The monetary authorities had previously raised the key monetary policy rate by 0.75 percent four times in a row. However, they are now seeing significant progress in containing inflation and want to take a less aggressive stance.
“The topic of ‘inflation’ is becoming less explosive, and the Fed can use it to shift down a gear,” says Gitzel, a specialist. At the next interest rate meeting, she will therefore vote for an interest rate step of just 25 basis points.
Investors take a similar view and are betting that the Fed will slow its pace of rate hikes in the new year. Currently, 79 percent of market participants expect only a small rate hike of 0.25 percentage points for the next meeting on February 1st. Philadelphia Regional Fed Chairman Patrick Harker called that magnitude “reasonable” today.