Inflation Records Biggest Drop In Almost 3 Years

(Photo credit should read JOHN THYS/AFP via Getty Images)

AFP via Getty Images

Key takeaways

  • Inflation fell in December, with the overall Consumer Price Index (CPI) falling 0.1% for the month.
  • It’s the biggest reduction since April 2020, and brings the annual rate of inflation own to 6.5%, from 7.1% last month.
  • The biggest driver of the reduction was lower fuel and gasoline prices, which were down double digits. It’s not all good news though. Eggs were up 11.1%.

Every month, half the country waits with bated breath to see what the latest inflation figure is going to be. Ok, that might be a slight exaggeration, but still, what a time to be alive. Who would have thought that the average person would be so interested in the increase in the price of soybeans and floor coverings.

But here we are.

And while we’re used to seeing the words “all time high” repeated over and over again with every inflation announcement, it looks like the dominoes are finally starting to tumble.

Because this month, prices went down. Yes, actually down. It’s not that they went up less than December last year, meaning the annual rate is now lower. The average prices for things are actually lower than they were in November.

Before we go getting ahead of ourselves, we’re talking about a decrease of 0.1%. So it’s probably not the time to be cracking open the champagne and ordering the prime rib, but nevertheless, its progress.

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Inflation falls 0.1% in December

The headline rate of inflation snuck down 0.1% in December, which means the annual rate is down to 6.5%. That’s still high, but we’re seeing some real movement in the annual headline figure now, which was still at 7.1% last month.

One of the biggest drivers for the drop has been a significant fall in the cost for gasoline (-9.4%) and other fuel oils (-11.9%). It means a significant decrease in the prices at the gas station for drivers, which will be a relief that will surely help households.

There were plenty of other areas that saw big sizable reductions as well. As is always the case with the inflation figures, the items are pretty random. The price of bacon went down 2.9%, fresh fruits were 1.9% cheaper than the month before, mens underwear and swimwear dropped 1.4% and womens dresses were 2.4% lower.

Wardrobes were real winners in December as mens shoes also went down 2.4%, womens footwear was down 0.6%, as was womens underwear (-0.7%) and watches (-0.1%).

Used cars and trucks fell further (-2.5%) which is good news for those in the market for some new wheels, but not great news for companies like Carvana. Vehicle parts and equipment other than tires went down 1.2%.

Non-prescription drug prices fell 0.4%, audio equipment was down 2.4%, health insurance dropped a surprising 3.4%, car and truck rentals fell by 1.6% and accounting fees went down 3.5%.

You get the picture, lots of stuff got cheaper. But not everything.

While overall prices were down, there were many items that continued to get more expensive through December. Some notable outliers were eggs, which went up by 11.1%, meaning overall your eggs and bacon breakfast is still going to cost you more.

Thinking of a sweet option to start the day instead? Well sweet rolls, coffeecakes and doughnuts were up 2.6% as well. Tomatoes went up 3.4%, lettuce was up 4%, dried beans and peas were 3.2% more expensive and butte went up 3.3%.

All in all, you shouldn’t expect to see any major difference to your weekly grocery shop just yet, but it’s progress.

Core CPI, which strips out the volatile food and energy sectors, went up by 0.3%, which was in line with expectations. It puts the annual headline rate at 5.7%, which is down from the 6% recorded last month.

How did the markets react?

They ignored it, pretty much. That’s not really a surprise, given that this month’s figures were basically bang in line with analysts’ projections. The S&P 500 was broadly flat in opening hours trade, and Treasury yields have decreased slightly.

Information from the bond markets now suggests that the Fed will look to implement an interest rate hike of 0.25 percentage points at their next meeting on February 1st. This marks a swift come down from their record increase, which saw rates upped by 0.75 percentage points four times in a row last year.

At the last meeting in December, this was moderated somewhat with a hike of 0.5 percentage points.

The Fed has made it clear that they will do whatever they need to do in order to bring inflation back down to the target rate of 2-3%, but chairman Jerome Powell has stated that they hope to be able to do this without a hard landing for the economy.

How can investors navigate ongoing high inflation?

The trend is in the right direction, but inflation isn’t likely to come back down into the target range for a while. There are a number of different asset classes that investors can look to in order to provide them with some protection against inflation. Some examples include:

Treasury Inflation Protected Securities

TIPS, or Treasury Inflation-Protected Securities, are a type of bond issued by the U.S. government. They are similar to other bonds, but they have an added feature to protect your investment from inflation.

When you invest in TIPS, the value of your bond will increase with inflation. So, even though you may have bought the bond for a certain amount of money, by the time it matures, it will be worth more in terms of buying power.

The interest payments on TIPS are also increased to keep up with inflation. This means that your investment’s value will not decrease as much as it would with regular bonds.

Gold and Precious Metals

Precious metals have been considered a hedge against inflation and a store of wealth for literally thousands of years. Even today, gold in particular is seen as a ‘safe haven’ asset, and often performs well during times of economic crisis.

These days gold investments are usually made through the use of ETFs and commodity based funds, but some die hard gold bugs still hold gold investments the old fashioned way.

Real Estate

Property is another asset which has traditionally been considered a solid hedge against inflation. The income from the rental payments will generally rise at the rate of inflation, and can go up above the rate of inflation during certain time periods.

By extension, the capital value of a property can go up above inflation over the long term as well. Because property is more illiquid than other assets like stocks, panic selling and large swings in the values are less common.

That’s not to say they don’t happen, as we saw in 2008.


Commodities are goods like oil, wheat, wool, cotton and copper. These are raw materials that we use to create the goods and products that we consume and use every day. They can be a really good hedge against inflation, because the change in the price of commodities is often what’s driving inflation in the first place!

You might not want to keep a flock of sheep or a field of wheat handy, but these days there are a variety of investment vehicles that allow speculation in the commodity assets, without having to take delivery of 4,000 barrels of crude oil.

How to invest in inflation hedged assets

If you don’t want to go out and piece together an inflation hedged portfolio yourself, we’ve got you covered. At, we harness the power of AI to help keep your assets rising with prices with our Inflation Protection Kit.

This Kit invests in a mix of TIPS, precious metals and a basket of commodities. Each week, our AI predicts how these different assets are likely to perform on a risk-adjusted basis, and then automatically rebalances the portfolio according to the predictions.

Want to focus just on precious metals? Our Precious Metals Kit uses AI in the same way, but targets its strategy towards metals based ETFs that invest in a range of different shiny things including gold, silver, platinum and palladium.

Download today for access to AI-powered investment strategies.


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