Wall Street Times

US inflation falls drastically for the first time

Image Source: Bloomberg

The sharp drop in energy prices, especially gasoline prices, is slowing the cost of living in the US.

The US Labor Department said that over the past 12 months, inflation in the US was 6.5%, which was down from 7.1% in November.

That was the slowest growth in more than a year, and it was the sixth month in a row that growth had slowed.

From November to December, prices went down for things like oranges and bananas.

In the last month, prices have gone down by 0.1%. The price of gasoline went down, so this happened.

In a speech on Thursday, President Joe Biden praised the report.

“It’s clear we’re going in the right direction,” he said. “This gives people and families a real break and more space to breathe.”

But some analysts said that the lower energy prices weren’t helping other things as much as they had hoped.

For example, the price of clothes went up by 0.5% from November to December and by 2.9% from a year ago.

The Fed trying to keep inflation from going up

The US government has been working hard to keep prices from going up. However, prices increased significantly when the economy started to grow again in 2021 after being shut down by a pandemic. Companies had to raise prices because of shortages and rising costs.

The war in Ukraine has made it harder to get food and energy, worsening the problem. As a result, inflation reached 9.1% in June, the highest level in more than 40 years.

Last year, the US central bank tried to get inflation back to 2%, a healthy level, by raising interest rates faster in decades.

Last month, Jerome Powell, in charge of the Federal Reserve, said that the bank would move less quickly to see how changes affect the economy.

The Federal Reserve hopes to reduce the demand for expensive things like homes and cars by making it more expensive to borrow money. This will slow down the economy and take some pressure on prices.

People are paying close attention to its fight because the slowdown caused by higher rates could also put the world’s biggest economy into a recession.

Thursday, the Labor Department released a report that said gas prices were 1.5% lower in December than they were the year before. A year ago, used cars and trucks were 8.8% more expensive than they are now.

But Seema Shah, the chief global strategist at Principal Asset Management, said the report was disappointing and didn’t say much about the bank’s future.

More new jobs were added in December

Even though prices were going up quickly and hurting the economy, job growth in the US stayed strong last month.

The unemployment rate decreased from 3.6% in November to 3.5% in December because employers added 223,000 jobs.

The strong job market gives people hope that the biggest economy in the world will avoid a serious economic downturn this year.

The US central bank is trying to slow down the economy and ease price pressures by making it more expensive to borrow money.

As businesses try to deal with the effects of higher interest rates and the possibility that consumers will spend less, the news that banks and tech companies like Amazon are cutting many jobs has gotten much attention.

But a monthly report from the US Labor Department showed that jobs were being added in almost every part of the economy. Bars, restaurants, health care, and building companies all contributed to growth.

Andrew Challenger, the senior vice president of Challenger, Gray & Christmas, which has been keeping track of job loss announcements since the 1990s, said that even though job losses are going up, especially in the tech sector, the numbers were still close to all-time lows last year.

Since the pandemic started up again in 2021 and caused the economy to grow quickly, it has slowed down a lot.

Higher borrowing costs hurt businesses in the housing and banking industries, and rising prices hurt family budgets. As a result, people are worried about how much they will spend, which is the main thing that keeps the US economy going.

The latest report says that prices in the US have gone up by 7.1% in the past year. This is much faster than 2%, which is a healthy rate.

Analysts said the future is still being determined because the job market is doing well. But if the Federal Reserve wants to keep inflation under control, it might have to raise interest rates.

Lazard’s chief market strategist, Ronald Temple, said, “As long as the job market is this tight, the Fed can’t be sure that inflation will return to its target of 2%.”

According to the Labor Department, the average hourly wage went up by 4.6% from December to December of this year. However, analysts said that it was slower than in November, so it was a good sign for fighting inflation.

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But it was a mixed bag for workers, whose pay raises have yet to keep up with prices.

Prices of goods and services are going up faster than worker pay. It can be hard for families to pay their bills when this happens. Mark Hamrick, a senior economic analyst at Bankrate.com, said, “It will be important to see how this equation plays out in the coming months, especially if inflation pressures ease.”