Recent data from the Bureau of Labor Statistics out Wednesday showed that a key inflation metric eased for the primary time since July.
On a “core” basis, which strips out the more volatile costs of food and gas, the December Consumer Price Index (CPI) climbed 0.2% over the prior month, a deceleration from November’s 0.3% monthly gain. On an annual basis, prices rose 3.2%.
Prior to December’s print, core CPI had been stuck at a 3.3% annual gain for the past 4 months. It was the primary time since July that year-over-year core CPI saw a deceleration in price growth.
The print is the newest economic data that the Federal Reserve will consider before its next rate of interest decision later this month. Stocks rallied within the wake of the report, with the 10-year Treasury yield (^TNX) falling 12 basis points to trade below 4.7%.
“Markets reacted positively this morning for a very good reason: The Federal Reserve is happy with watching the headline CPI go up temporarily if that increase doesn’t spill over into the core CPI, and that is what happened in December,” Raymond James chief economist Eugenio Aleman wrote in a Wednesday note.
Headline consumer prices rose as forecast last month. The CPI increased 2.9% over the prior yr in December, an uptick from November’s 2.7% annual gain in prices. The yearly increase matched economist expectations.
The index rose 0.4% over the previous month, ahead of the 0.3% increase seen in November and likewise on par with economists’ estimates.
Seasonal aspects like higher fuel costs and continued stickiness in food inflation kept the headline figures elevated.
US Federal Reserve Chairman Jerome Powell gestures as he speaks at a press conference after the Monetary Policy Committee meeting in Washington, D.C., on Dec. 18, 2024. (ANDREW CABALLERO-REYNOLDS / AFP via Getty Images) ·ANDREW CABALLERO-REYNOLDS via Getty Images
Core inflation has remained stubbornly elevated on account of higher costs for shelter and services like insurance and medical care. Used automobile prices also saw one other strong uptick for the third consecutive month, rising 1.2% in December after a 2% monthly gain in November.
Although inflation has been slowing, it has remained above the Federal Reserve’s 2% goal on an annual basis.
“It hasn’t been regular on inflation,” Claudia Sahm, chief economist at Recent Century Advisors and former Federal Reserve economist, told Yahoo Finance’s Morning Transient program. “It has been quite uneven, however it is sweet to see some progress in the appropriate direction. And I feel that that is the large piece of this. We have been in a really ‘wait and see’ on the inflation front. And that is very much where the Fed is lined up.”
“It’s a little bit of a breather to get some ‘not not’ bad news this morning,” she continued. “Nevertheless it’s really not a game changer. It’s loads more of what we have seen with the month-to-month volatility mixed in.”
Trump’s proposed policies, similar to high tariffs on imported goods, tax cuts for firms, and curbs on immigration, are seen as inflationary. And people policies could further complicate the central bank’s path forward for rates of interest.
Notable callouts from the inflation print include the shelter index, which rose 4.6% on an unadjusted annual basis, barely lower than November’s 4.7% uptick and the smallest 12-month increase since January 2022. The index rose 0.3% over the prior month, matching November.
Sticky shelter inflation has largely been blamed for higher core inflation readings over the past few months, based on economists.
The index for rent and owners’ equivalent rent (OER) each rose 0.3% from November to December, a slight acceleration from the prior month’s 0.2% increase for each categories. Owners’ equivalent rent is the hypothetical rent a home-owner would pay for a similar property.
The lodging away from home index fell 1% in December after rising 3.2% in November.
Meanwhile, the energy index rose 2.6% month over month after rising just 0.2% in November. On a yearly basis, the energy index was down 0.5% after a 3.2% decline the previous month.
Inside energy, gas prices surged, rising 4.4% in December after a modest 0.6% uptick the previous month.
Gas prices rose 4.4% in December after a modest 0.6% uptick the previous month (Courtesy: REUTERS/Kevin Lamarque) ·REUTERS / Reuters
The food index increased 2.5% in December during the last yr, with food prices rising 0.3% month over month — proving to be a sticky category for inflation. The indexes for food at home and food away from home each increased 0.3% in December.
Notably, on an annual basis, groceries are up probably the most since October 2023. Egg prices continued to be a standout, increasing one other 3.2% month over month after rising 8.2% in November. The worth of eggs has risen 37% during the last yr.
Other indexes with notable increases during the last yr include motorized vehicle insurance (+11.3%), medical care (+2.8%), education (+4%), and recreation (+1.1%).
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
