Today's Balance: News you need to know on January 12, 2023

Let's all breathe a sigh of relief: Inflation is coming down.

Today's report showed that the US economy really lived last month, as prices fell 0.1% after a 0.1% increase in November. The level of annual inflation also cooled from 7.1% to 6.5% in November, according to economists' forecasts.

A sharp drop in gas prices was the biggest reason for last month's decline, offsetting higher costs for food and housing. The rate of “core” inflation, which excludes food and energy costs, rose 0.3% last month and 5.7% year-on-year, down from November's 6% annual rate. These figures were also in line with the forecasts of economists.

The news should provide optimism for investors and shoppers worried about the impact of rising costs on the U.S. economy and the decisions it may make as a result. For anyone struggling as high prices make shopping for food and other goods a financial pain, today's data shows that the Fed's rate hikes are working.

Investors also have reason to cheer, as a cooling inflationary environment could lead to less aggressive rate hikes by the Fed at a more moderate pace. The central bank is set to hold its first policy meeting of the year at the end of the month, and with inflation slowing, investors expect the Fed to hike interest rates by just 25 basis points.

But stocks were flat and mixed on the news, with the Fed unlikely to halt rate hikes altogether. It's important to remember that inflation is still reported to be well above what the Fed is reporting. Politicians have made it clear that they won't let up until inflation matches that number. Until then, we can all be glad that our wallets won't be so broken anymore.