US inflation is set to fade in 2024

U.S. inflation is set to further recede in 2024, ending the year near the Federal Reserve’s 2% target as economic disruptions from the pandemic fade further and prices of some goods even decline.

The downdraft should keep the U.S. central bank firmly on course for lower interest rates, with cuts expected to come as soon as March. President Joe Biden, for his part, may have a harder time capitalizing politically on the campaign trail, especially if lower inflation comes alongside a broader slowdown in the economy.

The December report on consumer prices, released by the U.S. Bureau of

Labor Statistics Thursday, will probably give a taste of the disinflation to come in the months ahead. Goods prices overall have stopped rising and some, like those for cars, are falling.

“This year is likely to be very soft. You’re still likely to see things held down by improving supply conditions,” said Alan Detmeister, an economist at UBS Investment Bank. “We expect to see a lot of slowing in the near term and a more gradual slowing further out.”

Thursday’s report will probably show core inflation excluding food and energy moderated to 3.8% in the 12 months through December, according to a Bloomberg survey. That would mark the slowest pace of increase since May 2021.

Over the last few months, inflation has come down faster than economists on Wall Street and at the Fed had anticipated, building expectations for substantial reductions in the central bank’s benchmark interest rate this year.

The surprise development was in no small part thanks to a turn lower in core goods prices, which dropped for six straight months through November. That followed a jump of about 16% from February 2020 to May 2023, when a surge in consumer demand and supply-chain disruptions sent prices of items like cars and clothes soaring.

Fed officials at their policy meeting last month debated whether supplychain improvements could continue to provide relief on prices, according to minutes of the gathering published on Jan. 3. Economists also question whether there’s still more room to improve on the supply side.