US inflation is set to fade in 2024 as goods prices keep falling

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.

“By the second half of the year we should be seeing monthly run rates on rents that are running very, very close to their pre-pandemic pace,” UBS’s Detmeister said.

Economists expect the Fed’s preferred inflation gauge to fall to 2.2% by the end of the year, according to a Bloomberg survey conducted in mid-December.