Inflation rose 2.9% on an annual basis in December, with the latest Consumer Price Index illustrating the Federal Reserve’s challenge in battling stickier-than-expected price increases.
Last month’s CPI was forecast to come in at 2.8%, according to economists surveyed by financial data firm FactSet. The Consumer Price Index, a basket of goods and services typically bought by consumers, tracks the change in those prices over time.
The Federal Reserve began cutting rates in September following a flurry of hikes that helped tame inflation after it hit a four-decade high of 9.1% in June 2022. Yet the Fed has struggled with the last leg of its inflation battle in pushing the CPI to a 2% annual rate, and December’s reading could convince the central bank to hold off on another rate cut at its next meeting, scheduled for Jan. 29.
Still, there are some signs of progress in the Fed’s inflation battle. Core CPI, or prices excluding the volatile energy and food costs, rose 3.2% on an annual basis, lower than the 3.3% rate expected by economists.
“After recent red-hot data, today’s softer than expected core CPI reading should help cool fears of a reacceleration in inflation,” said Tina Adatia, head of fixed income client portfolio management at Goldman Sachs Asset Management, in an email. “While today’s release is likely insufficient to put a January rate cut back on the table, it strengthens the case that the Fed’s cutting cycle has not yet run its course.”
At the same time, economists are expressing concern about the incoming Trump administration’s economic plans — a mix of new tariffs, tax cuts and mass deportations — which they say could reignite inflation.
“Progress toward the Fed’s 2% inflation target has stalled,” Seema Shah, chief global strategist at Principal Asset Management, said in an email before the CPI report. “The proposed increase in tariffs by the incoming administration is adding to inflation concerns.”
Prices in December accelerated due to higher gasoline prices, which rose 4.4% from the prior month, as well as food and housing, according to the report released Wednesday by the Bureau of Labor Statistics.
