USA: low inflation in December is an ideal scenario for an economic “soft landing”

WASHINGTON (AP) — The Federal Reserve’s preferred inflation rate fell last month as the economy continued to grow, a trend that is sure to be celebrated in the White House, where President Joe Biden is seeking re-election in a campaign whose outcome could hinge on his economic management.

A government report Friday showed prices rose just 0.2% from November to December, a pace similar to pre-pandemic levels and slightly above the Fed’s 2% target. the same as in the previous month.

Excluding volatile food and energy products, prices rose just 0.2% for the month. Compared with a year earlier, so-called “core” prices rose 2.9% in December, the weakest rise since December 2021. Economists consider core prices a more accurate indicator of likely inflation trends.

The day before, government data showed that the economy grew at an astonishing 3.3% annually in the final quarter of 2023. Consumer spending boosted growth after a year that began with widespread expectations of a recession. Instead, the economy improved 2.5% in 2023, up from 1.9% in 2022.

The Republican opposition has tried to highlight the biggest jump in inflation in 40 years, attributing it largely to the president’s fiscal measures. But with inflation plummeting after a long period of consumer pessimism, Americans are beginning to show signs of an improving economy. The University of Michigan’s Consumer Confidence Index recorded its biggest increase since 1991 over the past two months.

The most recent data shows the economy is achieving a “soft landing,” meaning inflation will fall to the Fed’s 2% target without falling into recession. That will allow the Fed to explore the possibility of lowering its benchmark interest rate, which it has raised 11 times since March 2022 to combat inflation. High interest rates have stifled home and auto sales as borrowing costs soar.