U.S. inflation and consumer spending cooled in December

The Federal Reserve’s preferred inflation gauge eased further in December, and consumer spending fell — the latest evidence that the Fed’s series of interest rate hikes are slowing the economy.

Consumer spending fell 0.2% from November to December and was revised lower to show a drop of 0.1% from October to November. Last year’s holiday sales were sluggish for many retailers, and the overall spending figures for the final two months of 2022 were the weakest in two years.

The pullback in consumer spending will likely be welcomed by Fed officials, who are seeking to cool the economy by making lending increasingly expensive. Still, the decline in year-over-year inflation matches the Fed’s outlook and isn’t likely to alter expectations that the central bank will raise its key rate by a quarter-point next week.

On a monthly basis, inflation ticked up just 0.1% from November to December for a second straight month. Energy prices plunged 5.1%, and the overall cost of goods also fell.

“Core” prices, which exclude volatile food and energy costs, rose 0.3% from November to December and 4.4% from a year earlier. The year-over-year figure was down from 4.7% in November, though still well above the Fed’s 2% target.

Friday’s figures are separate from the better-known inflation data that comes from the consumer price index. The CPI, which was released earlier this month, has also shown a steady deceleration.

The Fed has been seeking to slow spending, growth and the surging prices that have bedeviled the nation for nearly two years. Its key rate, which affects many consumer and business loans, is now in a range of 4.25% to 4.5%, up from near zero last March. Though inflation has been decelerating, most economists say they think the Fed’s harsh medicine will tip the economy into a recession sometime this year.