In December, US consumer prices experienced an annual increase of 2.7%, marking the conclusion of a year characterized by modest advancements in inflation, yet persistent affordability challenges for a significant portion of the American populace. The most recent Consumer Price Index, which assesses the average variation in prices for a selection of frequently acquired goods and services, indicated that the yearly rate of inflation remained steady from November, based on data on Tuesday. Nonetheless, the monthly rate of inflation increased to 0.3% compared to November, during which prices experienced an estimated average rise of 0.1% (a residual effect of data distorted by shutdowns). December’s increase was propelled by ongoing inflation in the housing sector, coupled with a notable rise in food prices (up 0.7% from the previous month) and an uptick in energy prices (up 0.3%). For December, forecasts indicated that the monthly CPI would increase by 0.3% compared to November, with a slight annual decrease to 2.6%, as per estimates. Expectations aligned for core inflation, which excludes food and energy: Analysts projected core CPI to increase by 0.3%, with the annual rate expected to rise to 2.7%. Tuesday’s report indicated that core CPI, a key measure of underlying inflation, increased by 0.2% from November, resulting in an annual rate of 2.7% in December compared to the previous year.
By the conclusion of 2025, inflation persisted at an elevated rate relative to historical norms. Nonetheless, the concluding CPI for the year indicated that some advancement took place: The overall and core inflation rates of 2.7% were lower than January’s rates of 3% and 3.3%, respectively, according to data. “I think it’s safe to say that inflation is not reaccelerating at this point, and signs point to it continuing to moderate – albeit slowly,” Elizabeth Renter stated in an interview. “I believe there remain certain risks in the environment.” One of the most significant risks, she observed, is the ongoing influence of tariffs. Sweeping tariffs were anticipated to elevate prices and exert upward pressure on overall inflation; however, they were not expected to trigger price hikes to soar as they did in 2022. The premise was that the price increases would be more “one-time” in nature. However, given that the policy has been implemented in a staggered manner, the effects have manifested in a delayed and inconsistent fashion. Numerous categories of goods have experienced significant price increases over the past year, with notable surges observed in coffee, home furnishings, major appliances, toys, window coverings, and tableware. Conversely, certain price pressures have been largely mitigated by manufacturers, retailers, and importers.
Nonetheless, firms often reassess their pricing strategies at the beginning of the year, as observed by economist Gregory Daco. This suggests that there may be a surge in goods inflation during the first quarter as companies attempt to transfer the elevated costs they have been absorbing for an extended period. The CPI report for December offered the most definitive insight into the inflation trajectory observed in the past three months; however, certain data distortions remain evident. November’s report exhibited irregularities in several dimensions, as the data collection for that month, along with October, was adversely affected by the government shutdown that persisted from October 1 to November 12. Consequently, the predominant share of prices remained uncollected for October, leading to a heightened reliance on estimates. Furthermore, the delayed commencement of data collection in November likely amplified the impact of holiday discounts. The previous CPI report indicated a more subdued inflationary landscape. While a majority of those anomalies were resolved in December, a few remain outstanding. For instance, the monthly price fluctuations for certain sub-indexes exhibited greater volatility compared to their recent trajectories. Nonetheless, the most critical data issue stemming from the shutdown is not anticipated to rectify until April: Housing-related inflation, reflected in the shelter index, which holds the greatest significance among the assortment of goods and services contributing to the CPI, predictably rebounded in December following a deceptively subdued reading in November.
The absence of data led the BLS to maintain previously reported shelter costs, thereby implying that rental inflation was effectively 0 in October. Nevertheless, it continues to operate at a pace below expectations, contributing to a decline in the overall inflation rate, according to economists. Dean Baker, senior economist at the Center for Economic and Policy Research, observed that the annual and core rates are approximately 0.1 percentage points below their expected levels. Baker indicated that this will ultimately self-correct, although it is unlikely to occur before April. The Bureau of Labor Statistics employs rotating six-month panels to gather its rent price data. Tuesday’s data is unlikely to significantly influence the Federal Reserve, which is set to announce its latest interest rate decision at the end of the month. “This CPI report does not signal an inflation reacceleration, but it also does not provide the Federal Reserve with a strong justification for rapid easing,” stated Sung Won Sohn. “The most probable trajectory involves a gradual transition towards rate reductions over time, while policymakers exercise caution until there is more definitive progress in shelter inflation and services inflation,” Sohn stated.
The Federal Reserve has faced extraordinary criticism from the White House during President Donald Trump’s second term for its reluctance to implement more aggressive cuts to interest rates, pointing to the inflationary pressures stemming from domestic initiatives like tariffs and wider geopolitical issues. Regarding inflation, it is anticipated to stay within the bounds of 2.2% to 2.7% in 2026, due to the push-and-pull dynamics that these extensive policies are exerting on businesses and American households, according to Eric Teal. “The inflationary pressures from tariffs are being countered by the deflationary impact of tighter immigration in the housing market,” he articulated on Tuesday. “Net immigration is nearing zero this year, and in light of the oversupply of apartments, vacancy rates are anticipated to rise while rents are projected to decrease.” Simultaneously, inflationary pressures are anticipated to persist within the leisure and hospitality sectors, which may face labor shortages due to the significant representation of foreign-born workers. “However, significant deflationary pressure from AI on wages is still in the making,” he added. Overall, the most recent inflation data does not significantly alter the everyday landscape for American households, according to NerdWallet’s Renter. “Individuals exhibit greater sensitivity to price levels compared to inflation, or the rate of change over time; the lingering effects of the high inflation period experienced a few years ago continue to be felt,” she stated. “The duration for that discomfort to diminish is expected to extend further.” Furthermore, wage growth has shown signs of moderation, and persistent affordability issues in essential sectors like housing are likely to remain significant challenges for numerous Americans, she noted.