Consumer prices rose 3.4 percent in 2023 as inflation plunged

Consumer prices grew slightly faster in December, according to data released Thursday by the Labor Department, capping off a year of plummeting inflation.

The Consumer Price Index (CPI), a closely watched gauge of inflation, rose 0.3 percent in the final month of 2023 and 3.4 percent over the past year.

While both the monthly and annual inflation rates came in higher than economists expected, 2023 ended with far slower price growth than the previous year. Experts said the figures still keep the U.S. economy on track to see lower inflation without a recession, even it holds up the Federal Reserve’s expected interest rate cuts.

“There is nothing in the report to cause the Fed to hurry to cut rates. However, because it was not too hot, it should leave the hopes of a soft landing intact,” said Alexandra Wilson-Elizondo of Goldman Sachs Asset Management.

The 2023 annual inflation rate is far lower than the 6.5 percent jump in prices seen in 2022, according to the Labor Department. Price growth remains above the Fed’s target of 2 percent but is well below the peak of 9.1 percent reached in June 2022, which broke four-decade highs.

Housing prices drove much of the December inflation jump and rose 6.2 percent in 2023, according to the Labor Department. Shelter costs make up roughly two-thirds of the CPI and have skyrocketed as persistent housing shortage collided with rapid Fed rate hikes.

Apartment rents also rose steadily over the past two years before showing signs of plateauing toward the end of 2023. Food costs also ticked higher in December, rising 0.2 percent thanks largely to increases in the prices of eggs and meat.

Updated at 8:52 a.m. ET