U.S. Inflation Cools 0.1%; But MA Grocery, Utility Costs Still Rising

BOSTON, MA — Inflation cooled again in December, bolstering hopes the Federal Reserve will do the same with interest rate hikes that have increased borrowing costs for Massachusetts residents — but consumer prices were still 6.5 percent higher last month than one year earlier.

It was the sixth straight year-over-year slowdown in the consumer price index, according to the new inflation report released Thursday by the Bureau of Labor Statistics. On a monthly basis, prices slipped 0.1 percent nationwide from November to December, the first such drop since May 2020.

Lower fuel costs helped drive inflation in the right direction. The national average for a gallon of gas declined from a $5-a-gallon peak in June to $3.27 a gallon Thursday, according to AAA. In Massachusetts, the average price for a gallon of gas was $3.30 as of Friday.

And that slightly higher cost of a gallon of gas is reflective of inflation trends in eastern Massachusetts and southern New England, where the cost of groceries and utilities was still higher overall.

All energy costs saw a 12.9 percent rise for the two months ending in November. Natural gas and electricity costs soared 18.6 percent and 24 percent, respectively, following rate hikes by Eversource and National Grid.

December food prices remained well above the year-over-year inflation rate, at 11.8 percent higher than in December 2021. The price of eggs jumped the most, costing 11.1 percent more than at the same time the previous year, due to unresolved pandemic-related supply chain issues and a widespread bird flu outbreak the Agriculture Department said wiped out 44 million egg-laying hens.

For the two months ending in November, grocery prices were up 0.7 percent in eastern Massachusetts — although restaurant food prices were down 1.4 percent.

The softer readings in the report add to growing signs the worst inflation in about 40 years is gradually waning. Still, the Fed doesn’t expect inflation to slow enough to get close to its 2 percent target until well into 2024. The central bank is expected to raise its benchmark rate by at least a quarter-point when it next meets at the end of this month

Last week’s jobs report for December bolstered the possibility that a recession could be avoided. Even as the central bank has jacked up its benchmark rate at the fastest pace in four decades and inflation remained high, the economy has kept growing and businesses have kept hiring. In December, employers added a solid 223,000 jobs, and the unemployment rate dropped back to 3.5 percent, matching a 53-year low.

At the same time, average hourly pay growth slowed, which should lessen pressure on companies to raise prices to cover their higher labor costs.

Another positive sign for the Fed’s efforts to quell inflation is that Americans overall expect price increases to decline over the next few years. That is important because so-called “inflation expectations” can be self-fulfilling: If people expect prices to keep rising sharply, they will typically take steps, like demanding higher pay, that can perpetuate high inflation.

On Monday, the Federal Reserve Bank of New York said that consumers now anticipate inflation of 5 percent over the next year.

That’s the lowest such expectation in nearly 18 months. Over the next five years, consumers expect inflation to average 2.4 percent, only barely above the Fed’s 2 percent target.

Still, in their remarks in recent weeks, Fed officials have underscored their intent to raise their benchmark short-term rate by an additional three-quarters of a point in the coming months to just above 5 percent. Such increases would come on top of seven hikes last year, which led mortgage rates to nearly double and made auto loans and business borrowing more expensive.

The Associated Press contributed reporting.