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Housing costs, namely rent, continued to dominate the overall inflation report, accounting for over half of the total monthly increase. Rent was up 0.4 percent compared to the month before, after a few months of rising 0.5 percent. Compared to December 2022, rent costs were up 6.5 percent.
Experts are hopeful that rent costs will keep easing as more homes become available and construction projects for houses and apartments wrap up. But the new supply won’t necessarily cause rents to fall, and experts caution that it will take time for relief to be felt throughout the entire market.
Energy costs also nudged the inflation rate up, as a rise in electricity and gasoline prices offset a drop in natural gas costs. Car insurance also rose 1.5 percent in December — and popped a notable 20.3 percent over the year before.
Diane Swonk, chief economist at KPMG, said she is keeping an eye on insurance costs in particular, including for cars and homes. Those categories fall under what’s known as “services inflation,” which hasn’t eased as much as inflation for basic goods, such as lumber or couches or refrigerators.
“That could create a floor under inflation, which would be problematic,” Swonk said.
The snapshot isn’t expected to shake up the Federal Reserve’s ongoing fight against inflation, or change basic understandings of how the economy is faring. Officials at the central bank and the White House have long warned that getting inflation down to more normal levels will take time and include bumps along the way.
Overall, though, there’s no denying that the economy is in a better position than just about anyone expected. Inflation has come down significantly since peaking at 9.1 percent in mid-2022. The labor market added 2.7 million jobs in 2023, with an average monthly gain of 225,000 jobs. Consumer spending is powering economic growth and stayed strong through the holiday season.
All that is despite the Fed’s moves to aggressively slow the economy by hiking interest rates to the highest level in 22 years, a bid to wrestle prices back under control. Forecasters overwhelmingly warned that the central bank’s sprint would tip the country into a recession. But month after month, major pillars of the economy are staying resilient, and inflation is inching closer to a more normal 2 percent, using the Fed’s preferred gauge.
And still, there is no downturn in sight.
“What we’re seeing now I think we can describe as a soft landing, and my hope is that it will continue,” Treasury Secretary Janet L. Yellen told CNN earlier this month.
Still, plenty of households say they aren’t feeling the kind of “soft landing” that economists and policymakers applaud. For starters, prices themselves aren’t returning to pre-pandemic levels, even if they aren’t rising as fast anymore. Polls and survey data routinely show that many Americans think they were better off before Joe Biden took office, although their behavior and spending habits aren’t changing as a result. This week, an Economist-YouGov poll found that 22 percent of Americans said the economy was getting better, while 27 percent said it was about the same and 45 percent said it was getting worse.
That poses a thorny challenge for President Biden’s reelection campaign. The White House is pushing to tout the economy’s strength while also acknowledging palpable frustration over housing costs and other essentials. Meanwhile, Donald Trump’s campaign has taken to slamming Biden’s economy, high inflation and high mortgage rates, even as the former president vows his own sweeping changes to the nation’s economy that threaten to reignite price hikes.
Some economists speculate that it will take time for the economy’s strengths to feel more tangible. The past few years were dizzying, and it wasn’t that long ago that households saw grocery costs or rent bills climb at a breakneck pace, or that businesses faced the prospect of yet another recession.
“It may take a little bit of time for Americans to really feel confident, that the good economic numbers that they’re seeing and their own good personal situations [are] actually going to be sustained,” Lael Brainard, a former top Fed official who now runs the White House’s National Economic Council, told Bloomberg’s “Odd Lots” podcast this month.
Fed officials, for their part, still have more work to do. But they’re comfortable at least setting the stage for multiple interest rate cuts this year. Officials haven’t given a clear sense of when that will happen, though some Fed watchers think the pivot could come this spring. (Central bankers have their first meeting of the year later this month. After that, they plan to convene again in March.)
“We kind of assume that it will get harder from here,” Powell said of the inflation fight at a December news conference. “But so far it hasn’t.”
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