The big economic data point of the day is the consumer price index for December, brought to you by the Labor Department.

When you look at the numbers, it’s a bit of a glass half-full, glass half-empty situation. Prices were up 6.5% over the past year, well above the Federal Reserve’s inflation target of 2%. They’ve exceeded that target for almost two years now.

On the other hand, inflation has been slowing down ever since June. In fact, 6.5% is the smallest 12-month increase since October 2021. 

On average, prices actually fell in December compared to the month before, when you factor in energy costs — which dropped — and food prices — which went up, but more slowly. People notice that kind of thing, said Morning Consult’s Kayla Bruun.

“So when you see grocery costs at least grow less quickly, that’s something that I think consumers will be happy about,” she said.

Food and energy prices are notoriously volatile, so economists like to focus on what they call core prices — basically, the cost of everything else.

Many of those prices have been sliding too, Bruun said. “Autos, for example. Used cars have been dropping for a while. New cars also came down this month.”

For months, used car prices were a huge cause of inflation. But the factors that pushed up those prices are largely behind us, said Liz Ann Sonders at Charles Schwab.

“That reflected that point in time where new car sales were imploding, because new cars couldn’t be finished, because there was no access to semiconductors,” she said.

Sonders said she’s also watching the three-month average of core inflation. In 2022, that average hit 8%; now, it’s down to just over 3%.

“So that is clearly in the direction that the Fed would like to see,” she said. “And unless we have some renewed uptick, that three-month annualized rate should continue to decelerate.”

If the trend continues, Laura Veldkamp at Columbia Business School said it’s possible that the economy could avoid a recession. In the past, she noted, the Federal Reserve has brought down prices by engineering recessions.

But now? “Given that prices are falling without the recession, I would hope that we don’t need to squeeze the economy so hard to cause the recession after that.”

In other words, the Fed has plenty of reasons to reduce the pace of its interest rate hikes.