Inflation is expected to fall in December in the US, and a wind of optimism is blowing

The staggering inflation curve in the US is slowly flattening, and December figures due on Friday should show a further slowdown, and perhaps even for the first time since May 2020, a small drop in monthly prices.

“Optimism remains intact,” said Edward Moya, economist for Oanda, in a note anticipating a report that will show “that disinflationary trends remain in place”.

CPI inflation, the benchmark measure, is expected to fall to 6.5% from December 2021, compared with a 7.1% increase between November 2021 and November 2022, according to the MarketWatch consensus.

And if we compare prices not over a year, but only over a month, it is a decrease that is expected, for the first time since Covid put the US economy under glass, there are almost three years. A decrease of 0.1% is thus expected against an increase of 0.1% last month.

Due in particular to a drop in petrol prices at the pump, notes Ian Shepherdson, chief economist for Pantheon Macroeconomics. And even new car prices could see their first one-month drop since January 2021.

Inflation in the US (AFP – ElĂ©onore HUGHES)

“But the potential for surprises in both directions is real,” he warns nonetheless.

It seems far away, now, the month of June, when inflation peaked, the highest level since 1981, at 9.1% over a year.

Nevertheless, even if this downward trend is confirmed, the US central bank (Fed), which has prioritized curbing inflation, will not declare victory so soon.

She wants to bring inflation back to around 2%, but favors another indicator, the PCE index.

– Costs and risks –

The monetary institution should continue to voluntarily curb economic activity so that the pressure on prices decreases permanently. To the detriment of economic growth, and even at the risk of provoking a recession.

Its key rate looks set to be raised further in the coming months and remain at a high level “for quite some time”, Michelle Bowman, one of the institution’s governors, said on Tuesday, while acknowledging that “it is likely”. that this weighs on employment.

“There are costs and risks in tightening policy (money, editor’s note) to reduce inflation, but I estimate that the costs and risks of allowing inflation to persist are much greater”, she had thus assessed.

However, it was optimistic about the possibility of managing to curb inflation without causing a recession. But the effects of Fed rate hikes take months to kick in.

A used car salesman in Arlington, Virginia on February 15, 2022 (AFP - SAUL LOEB)
A used car salesman in Arlington, Virginia on February 15, 2022 (AFP – SAUL LOEB)

And although consumers have seen credit rates rise, consumption has so far resisted. So did employment, with unemployment falling further in December to 3.5%.

However, the situation is likely to become more complicated in the coming weeks, analysts warn.

Layoffs are already on the rise in the tech sector, at Amazon, Salesforce, Meta – Facebook’s parent company -, Twitter and DoorDash. And in the financial sector, the banks Goldman Sachs and Morgan Stanley will also get rid of part of their workforce.

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