A Closely Watched Measure of Inflation Slowed in December

The Federal Reserve’s preferred inflation index climbed 5 percent in the year through December, a notable slowdown from November and a continuation of a six-month downward trend.

After stripping out food and fuel, the price index climbed 4.4 compared with a year earlier, in line with what economists in a Bloomberg survey had expected and a slowdown from 4.7 percent in November.

The overall picture is one of moderating inflation — providing some long-awaited relief for consumers — but which remains unusually rapid at more than twice the 2 percent rate the Fed aims for on average over time.

Central bankers are raising interest rates to make it more expensive to borrow money to make a major investment or finance a business expansion, hoping to cool demand enough that it drives price increases lower. Policymakers lifted their main policy rate from near-zero to more than 4.25 percent last year, and they are widely expected to raise it another quarter point in their decision on Feb. 1.

The Fed is deciding when to stop its rate increases and how long to leave them high — decisions that it has said will be influenced by incoming data on inflation and the broader economy. That focuses attention on figures like the one released on Friday.

“It will take time for supply and demand to come back into proper alignment and balance, so we must keep moving,” John C. Williams, the president of the Federal Reserve Bank of New York, said last week.

The Fed is also keeping an eye on measures of economic activity, including consumer spending and the labor market. While layoffs at big technology companies have been grabbing headlines in recent weeks, jobless claims remain very low and the unemployment rate is at the lowest level in half a century.

That is expected to change this year. As the Fed’s interest rate increases kick in fully, economists at the central bank and on Wall Street expect the U.S. economy to slow and for unemployment to tick higher. Officials are hoping that they can pull off the slowdown without tipping the economy into an outright recession, but there is no guarantee.