WASHINGTON D.C.: In December, US consumer prices fell for the first time in more than two and a half years as gasoline and motor vehicles prices declined, indicating that inflation was now on a downward trend, despite the the labor market remaining tight.

A Labor Department report released last week showed food prices posting their smallest monthly increase since March 2021, but rental prices remained at high levels, along with utilities.

Declining inflation could enable the Federal Reserve, which is is engaged in its fastest rate hike-cycle since the 1980s, to further slow the pace of its increases next month.

Philadelphia Fed's Patrick Harker said the "hikes of 25 basis points will be appropriate going forward."

Meanwhile, Sung Won Sohn, finance and economics professor at Loyola Marymount University in Los Angeles, noted, "The mountain peak of inflation is behind us, but the question is how steep the downhill is," as reported by Reuters.

In December, the consumer price index dropped 0.1 percent, the first decline since May 2020 during the initial wave of the COVID-19 pandemic. In November, the consumer price index rose by 0.1 percent.

"Today's report increases the likelihood of a soft landing," said Sinem Buber, lead economist at ZipRecruiter.

The disinflationary trend was "giving families some real breathing room and proof that my plan is working," President Joe Biden said this week.

As higher borrowing costs are curbing demand and supply chains ease, price pressures are falling.

In 2022, the US central bank raised its policy rate by 425 basis points, from near zero to between 4.25 and 4.50 percent range, the highest level since late 2007.

However, the labor market remains tight, with unemployment returning to a five-decade low at 3.5 percent in December, and 1.7 jobs for every unemployed person in November.

Meanwhile, a separate Labor Department report showed that initial claims for state unemployment benefits was 1,000 less, totaling a seasonally adjusted 205,000 for the week ending 7th January.

Last week, the government reported the economy created 223,000 jobs in December, more than double the Federal Reserve Bank's target of 100,000, which it said is required to cool inflation.

"Even if the Fed delivers a downshift in pace, it will continue tightening past its next meeting," noted Michael Pugliese, economist at Wells Fargo in New York.