Inflation and unemployment claims decline in the U. S.
2023.01.12 08:48
Inflation and unemployment claims decline in the U. S.
By Ray Johnson
Budrigannews.com – In December, amid falling prices for gasoline and other goods, U.S. consumer prices unexpectedly fell for the first time in more than two and a half years, indicating that inflation was now on a sustained downward trend.
The Labor Department reported on Thursday that the consumer price index decreased by 0.1% in December after rising by 0.1% in November. Since May 2020, when the economy was still reeling from the first wave of COVID-19 infections, that was the first decline in the CPI.
According to Reuters’ poll of economists, the CPI would remain unchanged.
The CPI increased 6.5% from January to December. That followed a rise of 7.1% in November, which was the smallest increase since October 2021. In June, the annual CPI reached its highest level since November 1981, when it reached 9.1%. The Federal Reserve’s target of 2% inflation has not been met.
The fastest monetary policy tightening cycle since the 1980s by the U.S. central bank is easing supply chain bottlenecks and reducing price pressures.
The U.S. Energy Information Administration’s data indicate that in December, gasoline prices decreased by 12.5 percent.
As the number of vehicles on the road grows, so do the prices of used cars and trucks. Retailers have been compelled to offer discounts on furniture and apparel as a result of the waning demand.
Prices for services have remained stable despite the onset of goods disinflation, which is supported by fixed rents. Services inflation remains firm even after excluding rents, indicating continued strong wage growth.
The Fed increased its policy rate by 425 basis points last year, moving it from close to zero to a range of 4.25 %-4.5 %—the highest level since late 2007. It predicted that borrowing costs would rise by at least 75 basis points by the end of 2023, as it did in December.
The Consumer Price Index (CPI) increased by 0.3% in December after rising by 0.2% in November, excluding the volatile food and energy components. After rising 6.0% in November, the so-called core CPI increased 5.7% through December.
Officials at the Fed will be happy to see that inflation has slowed down, but before they stop raising interest rates, they will probably want to see more convincing evidence that price pressures are going down.
In this regard, the labor market, which has remained tight, will be crucial. The unemployment rate has returned to its five-decade low of 3.5 percent. In November, there were 1.7 jobs for every unemployed person.
Initial claims for state unemployment benefits fell 1,000 to a seasonally adjusted 205,000 for the week ending January 7, according to a separate Labor Department report released on Thursday. 215,000 claims were anticipated by economists for the most recent week.
At the beginning of the year, it was difficult to adjust the data to account for seasonal variations, which is one reason why the unexpected drop in claims occurred. Despite high-profile layoffs in the technology sector and job cuts in interest rate-sensitive industries like finance and housing, claims have remained low.
Because of the pandemic’s difficulty in finding workers, economists assert that businesses are reluctant to send employees home for the time being. However, as rising borrowing costs stifle demand and plunge the economy into recession, they anticipate claims to rise by the second half of the year.
The claims report also revealed that, as a proxy for hiring, the number of people receiving benefits after an initial week of assistance decreased by 63,000 to 1.634 million in the week that ended on December 31.
The government reported last week that the economy added 223,000 jobs in December, which is more than double the 100,000 that the Fed, according to economists, needs to be sure inflation is falling. In 2022, a total of 4.5 million new jobs were created.
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