A stronger-than-expected gain in prices last month showed that the battle against inflation isn’t over.
The December reading of the Labor Department’s Consumer Price Index rose 3.4 percent from a year earlier.
That’s far below the 6.5 percent increase logged in December 2022 — showing the successes the Federal Reserve has made in using higher interest rates to cool the economy — but prices are still rising faster than the general 2 percent target rate.
On a seasonally adjusted basis, December prices rose 0.3 percent compared with November. That was quicker than both the 0.1 percent gain seen in November and the 0.2 percent uptick economists projected, according to FactSet.
The reading put pressure on markets. After spending much of the day in negative territory, the Dow Jones Industrial Average closed with a gain of just 15.29 points to 37,711.02. Among the major retail decliners were Kohl’s Corp., down 4 percent to $26.73; Under Armour Inc., 2.4 percent to $7.82; VF Corp., 2 percent to $16.96; Macy’s Inc., 1.9 percent to $18.62, and Nordstrom Inc., 1.7 percent to $18.34.
Investors and C-suites obsess over inflation because signs that price gains are slowing mean the Fed might start easing back on interest rates, making it cheaper to borrow money. In turn, that spurs more investment.
Higher prices on necessities like shelter — which accounted for more than half of the CPI increase in December — also sap consumers of spending power for more discretionary categories like fashion.
Already price increases accounted for a majority of the sales gains retail saw last year, which the CNBC/NRF Retail Monitor pegged at 5.3 percent.
And fashion overall is lagging the broader price gains in the market, which amounts to losing ground — while stronger players like Lululemon Athletica Inc. and Abercrombie & Fitch Co. have been able to charge ahead.
Apparel brands moved to raise prices as soon as they could coming out of the pandemic, but over this past holiday season many turned to discounts and buy now, pay later programs to spur business.
Apparel prices, which by the Labor Department’s reckoning includes watches and jewelry, saw December prices inch up 1 percent compared with a year earlier.
In keeping with the trend toward more casual looks, categories that often have a more formal styling had weaker showings.
While women’s apparel prices increased 1.5 percent in December, women’s suits and separates prices rose just 0.4 percent. While men’s apparel prices rose 1.8 percent, men’s suits, sport coats and outerwear were off 6 percent.
Jewelry and watch prices increased 2.2 percent.