Price levels decreased slightly last month amid a decline in energy prices; year-over-year inflation, therefore, fell from 7.1% in November to 6.5% in December, marking the largest overall decline in nearly three years while food and shelter prices continue to increase, according to a report from the Bureau of Labor Statistics. Food prices increased 0.3% and shelter prices increased 0.8% even as energy prices fell 4.5%.
Yellen remarked during an interview with NPR that inflation “has really been quite moderate, quite low for the last six months or so” even as price increases remain well above the 2% annual rate seen before the lockdown-induced recession.
“We continue to see improvement in supply chains,” she told the outlet. “Goods prices have actually been falling, and some of the supply chain issues that pushed up the prices of goods and commodities have really turned around. Rent indexes continue to rise. But really, we see those coming down substantially over the next six months or so.”
Yellen has received criticism over the past two years for downplaying the impact that record inflation would have on the economy. She said at the end of 2021 that the term “transitory” was not a reliable descriptor for rising price levels and admitted in the summer of 2022 that she was “wrong then about the path that inflation would take,” acknowledging that “there have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly.”
Officials at the Federal Reserve raised rates by three-quarters of a percentage point on four consecutive occasions last year before implementing a half-percent increase last month, causing higher interest rates across the economy as policymakers attempt to decrease inflation. Yellen said that she trusts central bankers to “make the best judgments that they can about what’s necessary to accomplish their dual mandate, which is to bring inflation down and to try to maintain a strong labor market.”
President Joe Biden also celebrated the most recent price level report, contending that the lower headline figures represent “more proof that my economic plan is working.”
“Even though inflation is high in major economies around the world, it is coming down in America month after month, giving families some real breathing room. And the big reason is falling gas prices,” he commented. “As inflation is coming down, take-home pay for workers is going up. Workers’ wages are higher now than they were seven months ago, adjusted for inflation. Wages for lower-income and middle-income workers have gone up even more.”
Price level increases nevertheless continue to outpace increases in nominal wages. Real average hourly earnings decreased 1.7% year-over-year as of last month, according to data from the Bureau of Labor Statistics, indicating lower purchasing power for households.
The most recent inflation data come after one of the worst stock market performances in modern history as soaring prices, geopolitical pressures, and backlogged supply chains plague the economy. The S&P 500 index plummeted nearly 20% in 2022, rivaling the 37% decline seen in 2008 amid the collapse of the banking system, as well as the 12% and 22% declines witnessed in 2001 and 2002 amid the dot-com bubble.