The December inflation report is likely to show that prices have fallen further, but remain high

The risky inflation report due on Thursday is expected to show that price gains slowed further in December thanks to lower gas and energy costsbut it is still historically high.

Economists expect the Consumer Price Index, which measures a basket of goods including gasoline, health care, groceries and rent, to show that monthly price gains were flat in December, down from a 0.1% increase in November. on an annual basis, Predict inflation It rose 6.5% at an annual rate, down from 7.1% in November and a high of 9.1% in June.

Excluding the more volatile measures of food and energy, prices are expected to rise by 0.3% or 5.7% annually, indicating that underlying inflationary pressures remain strong.

“I think inflation peaked a long time ago, in the early to mid part of last year,” Luke Tilley, chief economist at Wilmington Trust, told FOX Business. “The question has always been how fast it will go down. It’s clear that monetary policy is working and it has hit the bunker.”

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While consumers have recently been given a reprieve from inflation in the form of lower gas prices, the latest CPI report is likely to show that food and rent costs remain uncomfortably high. This is a worrying development because the rising costs of housing and food are directly and acutely affecting family budgets.

The report is the last before Federal ReserveThe next policy-setting meeting is on February 1 and will have major implications for the US central bank, which is tightening monetary policy at the fastest rate in decades while trying to crush out-of-control inflation. Officials have already approved seven consecutive interest rate increases in 2022, raising the federal funds rate to a range of 4.25% to 4.5%, to restrictive levels. Officials have since indicated that more hikes are coming this year and that they intend to keep interest rates at high levels for some time.

Wall Street firms and investors are watching with interest to see if the Fed commits to another 50 basis point hike when policymakers meet in February or instead agrees to a smaller 25 basis point increase. Shares rose on the Wednesday before the report was released.

CME FedWatch shows a 77% chance of a quarter point increase and a 23% chance of a half point increase.

“The weaker inflation report Thursday morning doesn’t actually change their near-term outlook much, or their language,” said Tilly, who expects the peak rate to be around 5%. “It basically confirms where they’re coming from with the desire to slow down the pace of the hikes.”

Jerome Powell, Chairman of the Federal Reserve, speaks during a press conference following the meeting of the Federal Open Market Committee (FOMC) in Washington, D.C., on May 4, 2022. (Al Drago/Bloomberg via Getty Images/Getty Images)

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The Fed also monitors other economic indicators, including job growth and consumer inflation expectations. In another welcome sign for the central bank, there were some signs of labor market weakness and a slowdown in rapid wage growth December jobs report last week.

“Overall, this report should serve to reassure the Fed that a continued slowdown in the pace of monetary tightening — which includes a 25 basis point rate hike in early February — is appropriate, although expectations for a dovish pivot will continue to be misleading, Gregory Daco, chief economist of EY Parthenon said Friday after the jobs report.

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