Inflation held steady in December, remaining well above the Fed's 2% target
Bureau of Labor Statistics releases closely watched December inflation data
‘The Big Money Show’ panel discusses whether small businesses are being squeezed by inflation, high borrowing costs and corporate dominance as Wall Street profits soar and bankruptcies on Main Street hit record highs.
Inflation rose at a steady pace in December and remained persistently above the Federal Reserve's target rate as policymakers consider the case for interest rate cuts amid economic uncertainty.
The Bureau of Labor Statistics said on Tuesday that the consumer price index (CPI) – a broad measure of how much everyday goods like gasoline, groceries and rent cost – rose 0.3% on a monthly basis in December and held steady at 2.7% on a year-over-year basis.
Both of those figures were cooler than the expectations of economists polled by LSEG.
So-called core prices, which exclude volatile measurements of gasoline and food to better assess price growth trends, were up 0.2% from the prior month and 2.6% from a year ago. Those figures were slightly below economists' expectations of 0.3% and 2.7%, respectively.
DECEMBER INFLATION DATA WILL BE 'EXTREMELY MUDDY' ECONOMISTS WARN
High inflation has created severe financial pressures in recent years for most U.S. households, which are forced to pay more for everyday necessities like food and rent. Price hikes are particularly difficult for lower-income Americans, because they tend to spend more of their already-stretched paychecks on necessities and have less flexibility to save.
Food prices increased 0.7% for the month and were up 3.1% from a year ago. The food at home index was up 2.4% from a year ago, while the food away from home index was up 4.1% since last year. Both were up 0.7% on a monthly basis.
FURTHER RATE CUTS IN QUESTION AS FED POLICYMAKERS DEEPLY DIVIDED OVER DECEMBER CUT, MINUTES SHOW
Inflation was relatively steady in December, with headline CPI unchanged at 2.7% and core CPI down slightly to 2.6%. (Spencer Platt/Getty Images)
Meats, poultry and fish prices were up 6.9% from a year ago, while egg prices were down 20.9% compared with last year as a supply shortage from an avian flu outbreak has eased. The fruits and vegetables index showed prices rose 0.5% on a monthly and annual basis.
Energy prices rose 0.3% in December and are 2.3% higher than a year ago. Gas prices were down 0.5% on a monthly basis and have decreased 3.4% since this time last year. Electricity costs declined 0.1% in December but have risen 6.7% in the past year.
Housing prices increased 0.4% in December and were up 3.2% compared with last year. The BLS noted that the increase in the shelter index was the largest factor in the monthly CPI increase. Tenants' and household insurance costs increased 1% in December and have risen 8.2% over the last year.
Transportation services costs were up 0.5% for December and 1.5% from a year ago. Auto maintenance and servicing costs increased 0.5% for the month and are up 4.9% from last year, while vehicle repair costs declined 3.7% on a monthly basis and are up 6.2% from last December.
The 43-day government shutdown, which was the longest in U.S. history, impacted October and November data collection, which will impart a downward bias to inflation data through April. (Anna Moneymaker/Getty Images / Getty Images)
The inflation data comes after a 43-day government shutdown that lasted from the start of October until mid-December disrupted previous CPI inflation reports, as the BLS was unable to produce a report for October and its ordinary data collection routines were disrupted in the first half of November.
Economists have cautioned that, because of the disruption, the process used by the BLS to carry-forward data through the lapse in data collection could impart a downward bias on the CPI inflation data through April this year.
US ECONOMY EXPECTED TO GROW FASTER IN 2026 DESPITE STAGNANT JOB MARKET: GOLDMAN SACHS
The fresh data will give Federal Reserve policymakers more context in assessing inflationary pressures as they consider potential interest rate cuts amid concerns about a weakening labor market.
"Distortions caused by the government shutdown have made the inflation data harder to interpret, but the recent run of figures suggests inflation has peaked," said Michael Pearce, chief U.S. economist at Oxford Economics. "We think tariff-driven price rises have mostly been passed through and anticipate further disinflation in services in 2026 will drive inflation back closer to the 2% target by the end of the year."
Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, said that, "We've seen this movie before – inflation isn't reheating, but it remains above target. There's still only modest pass-through from tariffs, but housing affordability isn't thawing."
GET FOX BUSINESS ON THE GO BY CLICKING HERE
The market's expectations that the Fed will leave rates unchanged at a range of 3.5% to 3.75% when policymakers meet later this month were largely unchanged following the December CPI inflation report. The central bank cut rates by 25 basis points at its three prior meetings.
The CME FedWatch tool showed a 97.2% chance of rates being left unchanged when the Fed announces its next move on Jan. 28, up from 95.6% yesterday and 82.3% a week ago.