|Inflation fell 0.1% in December. When compared to a year ago, inflation increased 6.5% on an annual basis.
Why it matters: Overall inflation cooled more in December, but core prices, excluding more volatile food and energy prices, rose 0.3% in December. On an annual basis core prices are up 5.7%, which is still high.
Details: The monthly decline in overall inflation was driven mostly by a 9.4% drop in gas prices. Prices also declined for used cars and trucks and airline fares. Prices increased for housing, household furnishings and operations, motor vehicle insurance, recreation, and apparel.
But: Price increases for necessities continues putting enormous pressure on family budgets:
- Grocery prices were up 0.2% in December and 11.8% annually.
- Electricity was up 1% on the month and is up 14% annually.
- Housing costs were up 0.8% and are up 7.5% annually.
Bottom line: This latest data could fool some into believing inflation is better than it is. The drop in gas prices deflects attention from the strong rise in core goods and services. That core prices are still rising sharply means the Fed will need to remain vigilant in its efforts to bring prices down.