December Inflation Falls for 6th Month to 6.5% on Food and Energy Declines

Falling food and fuel prices pulled the annual inflation rate to a 14-month low of 6.5%.

This, as the December Consumer Price Index report from the Bureau of Labor Statistics released Thursday (Jan. 12) showed that the headline number had fallen for a sixth consecutive month since a recent peak — and 40-year high — of 9.1% set in June, and to its lowest level since October of 2021.

On a monthly basis, the BLS said the overall prices were little changed, falling 0.1% in December after rising by the same amount in November.

“The index for gasoline was by far the largest contributor to the monthly all items decrease, more than offsetting increases in shelter indexes,” the BLS said, noting that the shelter index and rents were both up 0.8% for the month, and 7.5% from a year ago.

Other key movers of note last month included a 16% drop in fuel oil from November levels, although still up over 40% from last year.

Gasoline, however, fell another 9% last month and is now up just 0.4% from the end of 2021.

“Just as higher inflation is an income TAX, falling prices are akin to a TAX CUT. And unless households choose to save this excess income, this will likely keep consumption up,” Seth Golden, hedge fund consultant and chief market strategist at Finom Group told his 22,000 Twitter followers after the report’s release.

The Food Factor

Food prices collectively rose another 0.3% for the month and 10.4% from a year ago, BLS data showed, with food eaten at home up 11.8% and restaurant costs and other food eaten outside the home posting an 8.3% annual increase.

But even when the volatile food and energy sectors are backed out, the so-called core rate still reflected an overall 0.3% increase in the cost of goods and services in December, a pace that if annualized represents a stripped-down inflation rate that is still running about twice as hot as the Federal Reserve’s long-term target of 2%.

On an annual basis, the core inflation rate for the final month of 2022 fell to 5.7%, down for the third month and the lowest mark since 5.5% reading one year ago.

The year-end report also reflected continued price pain in transportation, which is up 14.6% from last year, as well as a more modest 4.1% rise in the cost of medical care.

On the vehicle front, the BLS said new car prices were up 5.9% in December but that used car prices were down by 8.8% from a year ago and had fallen for 6th consecutive months.