US consumer inflation matched expectations in December, reinforcing market expectations that the Federal Reserve might keep interest rates on hold when it meets later this month.
The Consumer Price Index for All Urban Consumers rose 2.7% in the 12 months through December, the US Bureau of Labor Statistics said on Tuesday, exactly in line with economists’ forecasts compiled by Dow Jones.
On a monthly basis, prices increased 0.3%.
The data follow a softer-than-expected inflation reading in November and come just days after a stronger US jobs report, together suggesting that price pressures remain elevated but not accelerating sharply.
Core inflation remains at slowest pace since 2021
On a core basis, which strips out volatile food and energy prices, consumer prices rose 0.2% in December and were up 2.6% from a year earlier.
The annual core inflation rate was unchanged from November and marked the slowest pace since March 2021, according to the Labor Department.
Policymakers tend to focus on core measures as a better gauge of underlying inflation trends.
“After the tariff-related price adjustments happen, underlying inflation looks pretty good here,” Tiffany Wilding, the chief economist at the bond giant PIMCO, said.
Tuesday’s report showed inflation pressures edging slightly higher on a monthly basis after unexpectedly cooling in November, but still well below the peaks seen in 2022.
Inflation has remained above the Fed’s 2% target since 2021, though officials have increasingly framed it as a less immediate risk than a sharp weakening in the labour market.
Shelter drives monthly increase
Housing-related costs were again the largest contributor to rising prices.
The index for shelter rose 0.4% in December, making it the biggest factor behind the overall monthly increase in the CPI.
Shelter inflation has been a persistent concern for policymakers, reflecting higher rents and housing costs that have been slow to ease.
Food prices also rose sharply.
The food index increased 0.7% over the month, with both food at home and food away from home posting similar gains.
Within grocery stores, five of the six major food groups recorded increases.
Prices for other food at home climbed 1.6%, while cereals and bakery products rose 0.6%.
Fruits and vegetables were up 0.5%, nonalcoholic beverages gained 0.4%, and dairy products rose 0.9%.
In contrast, the index for meats, poultry, fish and eggs fell 0.2%, driven by an 8.2% decline in egg prices.
Energy prices mixed in December
Energy prices edged higher overall, rising 0.3% in December.
Natural gas prices increased 4.4% over the month, while gasoline prices declined 0.5%. Before seasonal adjustment, gasoline prices fell 5.3%. Electricity prices dipped 0.1%.
Some categories exposed to tariffs, such as household furnishings, apparel and footwear, recorded price increases, though the impact was uneven.
Appliance prices, for example, fell 4.3% over the month, highlighting the varied effects across consumer goods.
Inflation report provides few clues for rate cut decision: analysts
The inflation report did little to change expectations for near-term monetary policy.
Market pricing from CME Group showed investors assigning a 95% probability that the Federal Reserve will leave interest rates unchanged at the conclusion of its Jan. 27–28 meeting.
That view was reinforced by comments from New York Fed president John Williams on Monday, who signalled little urgency to cut rates.
The December CPI data followed a jobs report showing the unemployment rate retreating from a four-year high, further reducing pressure on the Fed to ease policy quickly.
“We’ve seen this movie before — inflation isn’t reheating, but it remains above target,” wrote Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management.
“There’s still only modest pass-through from tariffs, but housing affordability isn’t thawing. Today’s inflation report doesn’t give the Fed what it needs to cut interest rates later this month.”
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