Inflation likely continued falling in December, but prices kept moving up much faster than they have in many years. This is the conundrum consumers, investors and central bankers with the Federal Reserve continue finding themselves in — slowing, but still fast inflation.
For years, inflation was like the speed limit in a school zone — slow and steady. But then, due to lots of factors, prices didn’t just accelerate, they blasted off about one year into the COVID-19 pandemic. The speed of some price hikes was blinding. Gasoline prices jumped more than 50%. Used vehicle prices were up 45%. Bacon increased more than 10%.
That was the spring and summer of 2021 as consumer inflation sped up on its way to hitting a 41-year high this past June. Since then, the momentum has eased, yet the annual inflation rate remains more than three times what it was during the decade before COVID-19. We remain far from returning to the school zone.
The December Consumer Price Index inflation data will be released Thursday in the week ahead.
The headline number is expected to continue slowing compared to a year ago. That’s good news for consumers. It will support Federal Reserve policymakers who want to slow down the pace of their interest rate hikes. And it may be welcomed by investors as evidence that price pressures on consumers and companies are easing.
Still, inflation will remain far above the speed accepted by the Fed. It isn’t comfortable for consumers, who are in the driver’s seat of the American economy, to continue navigating prices rising faster than their paychecks.
It isn’t energy fueling inflation these days. It’s services — what the Bureau of Labor Statistics calls “services less energy services.” Housing, health care, and pet care are examples of the service costs that are much stickier than pump prices. This inflation gauge has not slowed. It was up 6.8% in November compared to a year earlier.
On the dashboard of inflation indicators, investors and the Federal Reserve are watching the speed of services inflation.
