Shoppers carry bags in Chicago, Illinois. Photographer: Taylor Glascock/Bl.
U.S. consumer prices rose in December by less than forecast, after months of faster underlying inflation persuaded the Federal Reserve to signal a pause in interest rate cuts. The so-called core consumer price index (core CPI)—which excludes food and energy costs—increased 0.2 percent, after rising 0.3 percent four straight months, Bureau of Labor Statistics (BLS) figures showed Wednesday. From a year ago, the core CPI rose 3.2 percent.
Economists see the core gauge as a better indicator of the underlying inflation trend than the overall CPI, which includes often-volatile food and energy costs. That headline measure rose 0.4 percent from the prior month, with more than 40 percent of the advance due to energy.
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| Metric | Actual | Estimate |
|---|---|---|
| CPI month-over-month | +0.4% | +0.4% |
| Core CPI month-over-month | +0.2% | +0.3% |
| CPI year-over-year | +2.9% | +2.9% |
| Core CPI year-over-year | +3.2% | +3.3% |
While the easing in the core CPI is welcome after months of elevated readings, a series of subdued readings would be needed to convince Fed officials that they are again making adequate progress on inflation. Lingering price pressures have contributed to a deep selloff in global bond markets and fueled concerns that the Fed eased policy too quickly at the end of last year. Combined with last week’s strong jobs report, policymakers are widely expected to leave rates unchanged at their meeting later this month, and traders generally don’t expect another cut until later this year. Treasury yields slid, and S&P 500 index futures rose, while the dollar declined after the CPI data.
This is the last inflation report of President Joe Biden’s tenure, an administration dogged by high prices coming out of the pandemic that surged a cumulative 20 percent while he was in office. Donald Trump will be sworn in next week, and economists generally anticipate that his policies—particularly on tariffs—will put upward pressure on inflation. Measures of consumers’ expectations have been rising recently as well.
The advance in the CPI was led by food prices, airfares, new and used cars, auto insurance, and medical spending. Goods costs excluding food and energy rose only 0.1 percent, after a 0.3 percent increase in November. Shelter prices, the largest category within services, climbed 0.3 percent in December, for a second straight month. Owners’ equivalent rent, as well as rent of primary residence—subsets of shelter—both ticked up following the smallest gains since 2021. Excluding housing and energy, service prices rose 0.2 percent, the smallest increase since July, according to Bloomberg calculations.
While central bankers have stressed the importance of looking at such a metric when assessing the overall inflation trajectory, they compute it based on a separate index. That measure—known as the personal consumption expenditures (PCE) price index—doesn’t put as much weight on shelter as the CPI does, which is one reason why it’s trending closer to the Fed’s 2 percent target. Several categories that feed through to the PCE from the producer price index (PPI), a measure of wholesale inflation that was released Tuesday, were mostly tame. However, the PPI’s gauge of airfares picked up notably.
Policymakers also pay close attention to wage growth, as it can help inform expectations for consumer spending—the main engine of the economy. A separate report Wednesday that combines the inflation figures with recent wage data showed real hourly earnings grew 1 percent from a year ago, the smallest annual advance since July.
While data on retail sales, inflation expectations, and the housing market will be released in the next two weeks, this is the last major economic report Fed officials will see before their meeting on January 28 and 29. Recent speeches and forecasts have indicated policymakers are still wary of upside risks to inflation and that they prefer a cautious approach to adjusting rates.
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