The inflation fight faces a ‘difficult’ last mile

Inflation has fallen considerably from the highs of 2022, but the last mile to price stability may be the most challenging.

The Labor Department reported last week that the consumer price index re-accelerated in December amid a spike in energy and shelter costs, underscoring the challenge of taming price pressures within the economy.

The data showed that inflation rose 0.3% in December from the previous month and remains up 3.4% from the same time last year. Both of those figures came in higher than economists surveyed by Refinitiv expected. 

“While inflation will continue to ease, we have made the case that the endgame in the Fed’s efforts will not necessarily result in a 2% rate over the long term,” said Joe Brusuelas, RSM chief economist. “The evolution of the data illustrates just how difficult the last mile will be.”

FED’S FIGHT AGAINST INFLATION IS WEIGHING ON MIDDLE-CLASS AMERICANS

Customers shop at a supermarket in Foster City, California, on Sept. 13, 2023.  (Photo by Li Jianguo/Xinhua via Getty Images / Getty Images)

Other parts of the report also indicated that inflation has been slow to retreat. Core prices, which exclude the more volatile measurements of food and energy, climbed 0.3%, or 3.9% annually. Both of those figures are slightly higher than estimates; however, it marked the first time since May 2021 that core inflation fell below 4%.

Inflation is down sharply from June 2022, when it hit a peak of 9.1%, but prices remain well above the Federal Reserve’s 2% goal. And when compared with January 2021, shortly before the inflation crisis began, prices are up a stunning 17.6%. 

WHEN WILL THE FEDERAL RESERVE START TO CUT RATES?

“In the two-steps-forward-one-step-back inflation battle, December was a clear step back,” said Robert Frick, corporate economist with Navy Federal Credit Union. “Shelter prices accounted for half the increase, and there’s little relief in sight there as rents prove sticky and homeownership costs rise. Consumers felt the most immediate pain in December from higher food and energy prices, and those are the two commodities Americans are most sensitive to.”

High inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. Food prices are up 33.7% from the start of 2021, while shelter costs are up 18.7%, according to FOX Business calculations. Energy prices, meanwhile, are up 32.8%.

Pedestrians near the US Treasury building in Washington, D.C., on Dec. 30, 2022.  (Photographer: Ting Shen/Bloomberg via Getty Images / Getty Images)

The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily affected by price fluctuations.

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The typical U.S. household needed to pay $211 more a month in December to purchase the same goods and services it did one year ago because of still-high inflation, according to new calculations from Moody’s Analytics. Americans are paying on average $1,020 more each month compared with the same time two years ago.

Fed officials have acknowledged that there is still a ways to go on the inflation front, despite better-than-expected progress during 2023.

Atlanta Fed President Raphael Bostic warned that inflation’s descent toward 2% could slow in recent months.

Bostic, who will be a voting member of the Federal Open Market Committee this year, said he is “expecting to see much slower progression of inflation moving forward.” He also said there are “some risks that inflation may stall out altogether.”