US core CPI YoY actual 3.2% (forecast 3.3%, previous 3.3%)
Consumer prices rose in December, but 2024 ended with some modestly encouraging news on inflation, particularly in the housing sector.
The Consumer Price Index (CPI) increased by 0.4% for the month, seasonally adjusted, bringing the annual inflation rate to 2.9%, according to the Bureau of Labor Statistics (BLS). Economists surveyed by Dow Jones had anticipated monthly and annual increases of 0.3% and 2.9%, respectively.
Excluding food and energy, the core CPI rose 3.2% on an annual basis, down slightly from the previous month and marginally better than the 3.3% forecast. On a monthly basis, core inflation rose 0.2%, 0.1 percentage point lower than expected.
Energy prices drove much of December’s CPI increase, climbing 2.6% for the month due to a 4.4% surge in gasoline prices, which accounted for roughly 40% of the index’s overall rise. Food prices rose 0.3% for the month and 2.5% for the year, while energy prices dipped 0.5% annually.
Shelter costs, which make up about one-third of the CPI, increased by 0.3% in December and were up 4.6% year-over-year—the smallest annual gain since January 2022. Meanwhile, services prices excluding rents rose 4% annually, the slowest pace since February 2024.
Stock futures surged, and Treasury yields fell following the report. Despite the slightly better-than-expected numbers, the Federal Reserve still faces challenges in reaching its 2% inflation target. Headline inflation decreased from 3.3% in 2023, while core inflation was down from 3.9% a year earlier.
“Today’s CPI data may give the Fed a more dovish perspective,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “It likely won’t alter expectations for a pause in rate changes this month, but it could temper discussions of potential future hikes. The market's initial reaction suggests investors were relieved after several months of stubborn inflation readings.”
The Fed is expected to hold its policy steady at its upcoming meeting, supported by this CPI report and a softer wholesale price index reading earlier in the week.
However, the news was less favorable for workers. Inflation-adjusted hourly earnings declined by 0.2% for the month, with a year-over-year increase of just 1%, according to a separate BLS release.
Other details in the inflation report were mixed. Used car and truck prices rose 1.2%, while new vehicle prices increased 0.5%. Transportation services climbed 0.5% for the month and 7.3% annually. Egg prices spiked 3.2% in December, resulting in a staggering 36.8% year-over-year increase, and auto insurance rose 0.4%, up 11.3% annually.
“The inflation rate faces a ‘last mile’ problem, where progress in reducing price pressures has slowed,” said Sung Won Sohn, professor at Loyola Marymount University and chief economist at SS Economics. “Key inflation drivers—gas, food, vehicles, and shelter—remain challenging, but there are reasons for optimism, including moderating trends in shelter and labor costs.”
The report comes amid heightened market sensitivity to inflation and the Fed’s policy response. President-elect Donald Trump’s promises of tariffs and mass deportations have also fueled concerns about inflationary pressures.
Job growth in December exceeded expectations, with a 256,000 increase raising the possibility that the Fed could maintain its current stance or even consider rate hikes if inflation remains stubborn.
While the December CPI and wholesale price data show that inflation isn’t cooling significantly, there are no immediate signs of it reaccelerating, providing some reassurance to markets and policymakers alike.