The indicator confirmed its downward trend; The Fed is expected to moderate its rate hikes through 2023.
Inflation in the United States ended 2022 at an annual level of 6.5%, the sixth consecutive slowdown, leading to expectations that the Federal Reserve (Fed) will make its interest rate less restrictive in 2023 becomes.
The United States Bureau of Labor Statistics reported Thursday that inflation rose 6.5% annually in December, compared with 7.1% in November. The indicator marked the lowest level since October 2021, when it stood at 6.2% per year.
After inflation components, food prices rose by 10.4% in December and the annual increase in November was 10.6%.
The energy sector recorded annual growth of 7.3%, compared to 13.1% in November last year.
Core inflation was 5.7% per year in December, down from 6.0% previously.
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In December, raw material prices fell from 3.7% to 2.1%; Meanwhile, services rose 7.0%, compared to 6.8% in November.
Monthly contraction in December
On a monthly basis, inflation fell by 0.1% in December, helped by energy prices, a component that fell by 4.5% on a monthly basis.
Gasoline prices fell 9.4% in December compared to the previous month.
Data released by the Bureau of Labor Statistics also indicated a 0.8% increase in services and housing, a factor that prevented inflation from falling further.
Core inflation rose 0.3% monthly in December, above the 0.2% rise in November last year.
Optimism due to declining inflation
Inflation, which has been declining for six months, has raised expectations that the Fed will raise interest rates less aggressively.
In fact, markets now believe there is a lower probability of around 30% that the increase announced at the February 1 meeting will be more than 25 basis points.
Instead, expectations are beginning to emerge that the interest rate could fall later in the year, the Monex Stock Market Analysis and Strategy Area added.
For Monex, inflation will continue to see a slow but sustained decline; However, he estimated that December’s 6.5% was still far from the Federal Reserve’s target (2.0%).
That said, today’s result has sparked optimism, but the Financial Group does not expect it to lead to major changes in the Fed’s monetary policy.
With December results, Grupo Financiero BASE adjusted its inflation forecast for the end of 2023 from 3.8% to 3.1% annually.
The impact of the indicator on the exchange rate
Optimism about the slowdown in inflation in the United States led this Wednesday to the peso trading below 19 per dollar for the first time since February 2020.
This morning the exchange rate is 18.86750 pesos per dollar.
In addition to the possibility that the Fed will moderate its rate hikes, the currencies of emerging markets and commodity producers are also rising, driven by the lifting of mobility restrictions in China.
As the Asian country becomes more mobile, expectations of its economic growth and therefore its oil consumption are also increasing, which increases its price (demand) on the market.