Inflation rose 2.9 percent in December, as expected.
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Inflation picked up again in December as stubbornly high inflation weakened consumer finances ahead of the Federal Reserve’s next decision on interest rates.
The Labor Department said Wednesday that the consumer price index (CPI) — a broad measure of how much everyday items such as gasoline, groceries and rent cost — rose 0.4% in December, to a 2.9% annual rate. The 2.9% reading was the highest since July 2024.
The month-on-month reading was slightly warmer than expected by economists polled by the LSEG, while the annual figure was in line with expectations. The headline figure saw monthly price growth continue at a faster pace than a month earlier, compared with November’s reading of 2.7%.
Core prices, which include the more volatile measures of gasoline and food to better assess price growth trends, rose 0.2% month-on-month in December, in line with expectations and down 0.3% from the previous month. Core prices rose 3.2% in December from a year earlier, slowing slightly more than expected and down from 3.3% in November.
In December, US producer prices will increase slightly
The Consumer Price Index (CPI) rose 0.4% on a monthly basis and rose 2.9% in December from a year ago. (Justin Sullivan/Getty Images/Getty Images)
Inflation in the U.S. economy has continued to grow, bringing inflation closer to the Federal Reserve’s 2 percent target last year, the report said.
High inflation has put a heavy financial burden on most American families, forcing them to pay more for everyday necessities like food and rent. Rising prices are especially difficult for low-income Americans, who spend their already stretched wages on discretionary spending and have less flexibility to save money.
Energy costs account for more than 40% of the monthly CPI, and after energy prices showed little change in recent months, the Bureau of Labor Statistics’ energy index rose 2.6% in December. Petrol prices rose by 4.4% in December.
Food prices rose 0.3 percent month-on-month in December. Both in-home and out-of-home consumption increased by 0.3 percent last month.
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Prices for meat, poultry, fish and eggs rose 0.6 percent month-on-month and 4.2 percent from a year ago. Egg prices rose 3.2 percent in December and were up 36.8 percent from a year ago.
Housing costs increased by 0.3% in December, which is similar to the increase seen in November. The accommodation index rose 4.6% compared to last year, the smallest 12-month increase since January 2022.
Transportation prices rose 0.5% in December and rose 7.3% from a year ago. Car insurance prices rose 0.4% in December and were up 11.3% from a year earlier. Motor vehicle maintenance decreased by 0.6% in December, but increased by 7.2% year-on-year.
Airline fares rose 3.9 percent in December and were up 7.9 percent from a year earlier.
The data comes as the Federal Reserve meets later this month to decide whether to cut interest rates or keep inflation above the central bank’s target.
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Federal Reserve Chairman Jerome Powell suggested last month that policymakers may delay rate cuts in response to economic data. (Ting Shen/Bloomberg via Getty Images/Getty Images)
Fed Chairman Jerome Powell signaled that “we are or are at a point where it is appropriate to slow the pace of further adjustments” after policymakers met last month to cut the benchmark federal funds rate from 4.25% to 4.5%.
Markets expect the Fed to keep rates on hold at the upcoming meeting and the December CPI publication did not change those expectations, with the probability of rates staying at current levels above 97%, down from yesterday and up from 94.7% a week ago. According to the CME FedWatch tool.
“Today’s CPI may help the Fed feel a little nervous,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “A pause later this month won’t change expectations, but some talk of a possible Fed rate hike should be curbed. And based on the market’s initial reaction, investors appear to be relieved after a few months of sticky inflation.”
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Stocks rose after the CPI publication, with the S&P 500 index up about 1.3%, while bond yields fell and the 10-year US Treasury note fell below 3.7%.
“Despite the noise, inflation is not a concern,” said Gregory Dako, chief economist at EY. “The concern is that rising prices will hold back consumer spending for many low- and middle-income families, and that a ‘supply-side slack’ environment from deregulation, immigration restrictions, tariffs and tax cuts could lead to re-inflation.”
