For core inflation, which excludes energy and food, the December data also show a distinct difference between the first half of 2022 and the second “- though it’s not as steep as in the headline numbers. Image Credit: Shutterstock

Washington: Annual inflation in the US ended last year at 6.5 per cent. But that number doesn’t tell the whole story “- more like half of it.

It was a year of two distinct halves for US consumer prices, which climbed rapidly in the first six months of 2022, and then cooled down sharply after that as the cost of energy declined.

The consumer price index rose just 0.9 per cent in the second half of the year, data published Thursday by the Bureau of Labor Statistics show.

That translates into an annualized inflation rate of about 1.9 per cent since the end of June “- down from above 11 per cent in the first half.

“The numbers actually show that inflation has slowed down quite dramatically starting back around July,” Alan Blinder, a former Federal Reserve vice chair, told Bloomberg TV on Wednesday. He was speaking before the release of December’s consumer price index, which came in pretty much as expected.

None of this means that the Fed, which has been ratcheting interest rates higher to curb inflation, will declare mission accomplished and stop anytime soon.

The Fed looks at other price measures “- especially ones that strip out the prices of volatile commodities like oil, whose decline in the second half of the year helped push headline inflation lower. Those gauges show prices still rising significantly faster than the Fed’s 2 per cent target rate. It is expected to hike rates again next month, though possibly by a smaller increment.

It wasn’t the Fed

Still, what’s clear in the latest data is that US households are now getting some relief from a pandemic price-spike that drove inflation to the highest levels in generations and turned it into a problem that dominated political and economic debate.

The numbers also illustrate how year-over-year inflation rates “- the ones that typically make headlines “- don’t always capture what’s happening in the economy right now, because they include price shifts that took place many months ago.

Asked why inflation had come down so sharply in the second half of the year, Blinder said it was largely a story of oil prices, which soared in the first half of 2022 after Russia’s attack on Ukraine.

“I wouldn’t give too much credit to the Fed. Think about the timing. The Fed started raising interest rates only in March,” he said. “Already in July, inflation is slowing dramatically. Monetary policy doesn’t work that fast.”