US inflation rises to 3.4% in December on energy prices

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US year-on-year inflation numbers for December 2023 came in at 3.4%, a rise on November’s five-month low of 3.1% and above analyst estimates of 3.2%. 

The rise in inflation was largely due to energy prices in December 2023 falling at a lower rate than the previous month. Energy costs in December were down 2% versus -5.4% in the previous month, whereas fuel oil inched lower 14.7%, instead of -24.8% in November.

Prices also inched up at a slower rate for items such as shelter, which rose 6.2% in December, from 6.5% in November, as well as food, which saw an increase of 2.7%, from 2.9%. 

Medical care commodity prices advanced 4.7%, down from 5% in November. Apparel prices also rose 1% in December, down from 1.1% in the previous month, while new vehicle prices clocked an increase of 1% versus 1.3%.

Year-on-year, core inflation came in at 3.9% for December 2023, below November’s 4%, but above analyst estimates of 3.8%. Month-on-month inflation was 0.3%, up from November’s 0.1%, as well as consensus estimates of 0.2%.

Could US interest rates come down anytime soon?

The December FOMC minutes, released in early January, highlighted that the US Federal Reserve was becoming slightly more comfortable with the idea of cutting rates some time in early to mid-2024. This was largely due to concerns about the impact of long-term monetary policy tightening on the US economy, which is currently on the brink of recession.

Although the central bank had not yet revealed when and by how much that is likely to be, there are increased worries, because of the December inflation report, rate cuts will be pushed back.

A strong jobs market and the US economy still not quite in recession so far are also both contributing to speculations that US monetary policy may continue to remain quite tight for the foreseeable future. This is also due to inflation which, while slowly coming down, is still quite a bit above the Federal Reserve’s 2% target.

Next week, global leaders at the World Economic Forum 2024 in Davos, will also discuss new ways of creating growth and jobs for the global economy. Although it is considered unlikely that the Federal Reserve will use much of the take-aways from the summit in order to develop future monetary policy, they are still likely to shed more light on the path ahead for the US economy.

The central bank is likely, however, to keep waiting for more convincing proof that inflation really is on its way down, before making any concrete monetary loosening decisions. This includes retail sales, labour market and GDP reports, amongst others.