A shopper searches for produce at Reams Food Store in Sandy on Sept. 23, 2022. (Jeffrey D. Allred, Deseret News)
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SALT LAKE CITY – US inflation marked a sixth straight month of decline in December with the overall rate coming in at 6.5% compared to the same time last year and down from 7.1% in November, according to a new federal report.
The Labor Department released its December Consumer Price Index Summary on Thursday, noting that the 12-month inflation rate was the lowest since October 2021 and that average prices for goods and services fell .1% from November to December, the first monthly decline since May 2020.
A big drop in gasoline prices helped drive the decline even as average costs for food and shelter rose since December. The average cost of gas nationwide in December was down 9.4% from November while groceries were up .3% and shelter costs were up .8%. At the same time last year, grocery prices rose 10.4% and the cost of protection was 7.5% compared to December 2021.
Utah was among the Mountain West states that experienced the nation’s leading regional inflation rate for most of 2022 and that difference continued in December with inflation running at 7.4% for the region, the highest in the country.
Will the Fed relax on rate hikes with falling inflation?
The Federal Reserve has launched a year-long battle against rising prices of goods and services, kicking off the most aggressive series of rate hikes in decades in an effort to cool a sweltering economy.
The rate hike is intended to increase the cost of debt for businesses and consumers which should, in theory, reduce total spending and overall economic activity, a change in dynamics that normally lowers inflation rates.
But consumer spending remains robust and the US labor market continues to heat up, with unfilled jobs far outnumbering workers available to fill them.
The Fed is expected to raise its benchmark overnight lending rate again when it concludes its next meeting on February 1. But if inflation continues to ease, the monetary policy body could suspend its rate hikes after that, some economists said, or implement just one additional hike in March and then pause.
According to the Associated Press, futures prices indicate that investors expect the Fed to then cut rates later in the year, although minutes from the December meeting noted that none of the 19 policymakers forecast any rate cuts this year.
“If real inflation comes down, the Fed can feel more comfortable because it’s putting the economy in a good place,” Daleep Singh, global chief economist at PGIM Fixed Income and a former Fed staffer, told the AP. Singh expects the Fed to raise its benchmark rate by a quarter point at each of the next two meetings and then stop with its key rate just below 5%.
What’s in store for Utah’s economy in 2023?
A report from the Utah Economic Council released Thursday predicts Utah’s economy could go one of three ways next year — continuing moderate GDP growth of 2% to 4%, seeing growth slow to 0% to 2% or slipping into a moderate recession where The state’s GDP could contract around negative 1%.
So why is the economic council, a collaboration of the University of Utah David Eccles School of Business and the Governor’s Office of Planning and Budgeting, presenting takeaway projections for the coming year?
The current economic situation has been turbulent due to a set of unusual functional and financial conditions and, therefore, should never be counted in economic forecasting. The global public health crisis, subsequent widespread disruption to product supply chains, seismic changes in consumer behavior and government-backed cash inputs such as individual stimulus checks and massive business subsidies have exploded previous models when it comes to predicting what’s next.
“The post-pandemic economy has changed many traditional economic relationships,” the report said. “This economic transformation makes accurate forecasting challenging because it is unclear if or when old patterns will return, or if new arrangements will chart a different economic course.”
The main takeaway from the report, which was presented to Utah Gov. Spencer Cox at an economic summit on Thursday, is a simple message that applies to budget decision makers at every level — be prepared for anything.