The latest government report on inflation in the United States has shown a further cooling in December, indicating a positive trend for the economy. With the Federal Reserve's preferred inflation gauge rising just 0.2% from November to December, the pace remains consistent with pre-pandemic levels. This figure is also barely above the Fed's annual target of 2%. Year-on-year, prices increased by 2.6%. When excluding volatile food and energy costs, core prices rose just 0.2% from month to month and 2.9% from a year earlier, marking the smallest increase in core prices since March 2021. Economists typically consider core prices as a more accurate gauge of inflation.
The latest data suggests that the U.S. economy is experiencing a 'soft landing,' whereby inflation falls back to the Federal Reserve's target without a recession. This outcome could make it easier for the Fed to consider cutting its key interest rate, which was raised 11 times since March 2022 to tackle inflation. Higher interest rates have adversely affected the housing and auto industries by raising borrowing costs. Businesses have also faced challenges due to increased borrowing expenses.
