Inflation continued to cool in December, the latest sign that painfully high consumer prices are finally beginning to loosen their stranglehold on the U.S. economy

The Labor Department said Thursday that the consumer price index, a broad measure of the price for everyday goods including gasoline, groceries and rents, fell 0.1% in December from the previous month. Prices climbed 6.5% on an annual basis. 

Those figures were both in line with forecasts by Refinitiv economists, potentially giving the Federal Reserve a reason to further slow its aggressive interest rate hike campaign when policymakers meet next month. 

It marked the slowest annual inflation rate since October 2021 and the slowest monthly rate since April 2020, at the height of the COVID-19 lockdowns. Still, inflation remains about three times higher than the pre-pandemic average, underscoring the persistent financial burden placed on millions of U.S. households by high prices. 

Core prices – which strip out the more volatile measurements of food and energy – climbed 0.3% in December from the previous month, up from 0.2% in November. From the same time last year, core prices jumped 5.7%. Those figures were also in line with economists’ expectations. 

Stocks jumped after the report showed a dip in prices last month, with the Dow Jones Industrial Average climbing 146 points. S&P futures added 0.5%, while Nasdaq Futures rose about 0.6%.

“Today’s CPI reading is another sign that inflation is heading in the right direction and indicates the peak is likely in the rear view,” said Mike Loewengart, the head of model portfolio construction at Morgan Stanley Global Investment Office. “But we aren’t out of the woods yet, as it is still well-above the Fed’s target rate and the Fed has remained adamant that they will keep rates high to bring inflation back to normal levels.”

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Scorching-hot inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily impacted by price fluctuations. 

Americans saw some real reprieve last month in the form of lower energy costs, which fell 6.1% in December. Gas prices dropped 12.5% over the month, the biggest contributor to the overall headline decline in inflation in December. The cost of airline tickets and used cars also fell.

US grocery shoppers

Shoppers are seen in a Kroger supermarket on Oct. 14, 2022, in Atlanta. (Elijah Nouvelage/AFP via / Getty Images)

Other price gains proved persistent and stubbornly high in November: The cost of groceries climbed 0.3%, putting the 12-month increase at 11.8%. Consumers paid more for items like eggs, cereal, rice, butter and fresh vegetables, including potatoes, lettuce and tomatoes.

This is a developing story. Please check back for updates. 

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