Inflation Slowed to 6.5% in December As Fed Rate Hikes Cool the Economy

Consumer prices rose 6.5 percent in December from a year ago.

December inflation
Core inflation came at 5.7 percent in December. Brandon Bell/Getty Images

Inflation in December dropped to 6.5 percent, down 0.6 percent from November to the lowest point in 14 months, the Labor Department reported today (Jan. 12). The reading is a relief for consumers and suggests the Federal Reserve’s tightening monetary policy is working, although it’s still a far cry from the central bank’s goal of lowering inflation to 2 percent.

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Consumer prices fell 0.1 percent in December from November, today’s report shows. Core inflation, which excludes increases in volatile food and fuel prices, came at 5.7 percent in December, compared with 6 percent in November.

Both figures are in line with economists’ forecasts. Major stock indexes fell slightly in today’s pre-market trading hours before rising. The Dow Jones Industrial Average is up more than 100 points and the S&P 500 ticked up 7 points.

With inflation still at its highest in decades, Fed officials said they will likely continue raising interest rates in 2023 but at a slower pace, about 25 basis points (or 0.25 percent) at a time.

“The days of us raising them 75 basis points at a time have surely passed,” Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, said in a speech today. “In my view, hikes of 25 basis points will be appropriate going forward.”

Inflation Slowed to 6.5% in December As Fed Rate Hikes Cool the Economy