According to the consumer price index, inflation rose in December due to higher energy and food prices.

The CPI, an indicator of inflation, rose 2.9% in December 2024 from a year earlier, the Bureau of Labor Statistics reported on Wednesday.

That’s up from an annual inflation rate of 2.7% in November and a recent low of 2.4% in September.

While the upward trend may seem discouraging, evidence suggests inflation is likely to continue its downward trend in 2025, economists say.

But they warn that the new administration of President-elect Donald Trump could halt or reverse that progress if it pursues measures such as tariffs and tax cuts that, depending on the size, can have an inflationary effect.

“The main wild card here is politics,” Joe Seydl, a senior market economist at JP Morgan Private Bank, said of inflation trends.

The CPI measures how quickly prices rise or fall for a basket of goods and services, from haircuts to coffee, clothing and concert tickets.

CPI inflation has declined significantly since its pandemic-era peak of 9.1% in June 2022. However, it is still above the Federal Reserve’s target. In the long term, the central bank is aiming for an annual interest rate of 2%.

(The Fed uses a different but similar measure of inflation, the personal consumption expenditures price index. CPI readings tend to be about 0.2 to 0.3 percentage points higher, Seydl said.)

“We’re not that far away,” said Seydl. “By the end of this year, we expect interest rates to be back within these targets year-on-year.”

There were some trouble spots in December.

For example, food prices rose 0.3% from November to December, according to CPI data. (An increase of about 0.2% per month is equivalent to meeting the Fed’s target, economists say.)

Eggs are a “swing factor” contributing to this increase, Seydl said.

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An outbreak of avian influenza, known as bird flu, in the United States has had a “significant impact” on egg prices, he said. The virus is highly contagious in birds and has killed millions of egg-laying chickens, reducing egg supplies.

According to the CPI, egg prices rose 3.2% from November to December, the largest increase of any food item. They are up 37% since December 2023.

Gasoline inflation also jumped, with prices rising 4.4% from November to December, according to CPI data.

However, consumers may not see that in the real world: Average prices at the pump actually fell about two cents last month, from $3.03 a gallon on Dec. 2 to $3.01 a gallon on Dec. 30 , according to weekly data from the Energy Information Administration.

Federal statisticians adjust inflation data for seasonal patterns; Gasoline prices fell less than usual in December, and the CPI registered this smaller-than-normal decline as an increase in inflation, Seydl said.

According to CPI, gasoline prices fell more than 3% last year. Groceries rose 1.8%.

Meanwhile, there were some bright spots in the CPI report, such as accommodation.

The annual housing inflation rate in December was 4.6%, the lowest since January 2022. As the largest component of the price index, it has a significant impact on the development of inflation.

Economists prefer to look at a measure known as the “core” CPI, which strips out volatile food and energy prices to get a more accurate reading of the underlying inflation dynamics.

The picture is better there: the core CPI fell to 0.2% per month in December after remaining at 0.3% per month since August. The annual core inflation rate fell from 3.3% to 3.2%.

“It’s encouraging that inflation continues to decline slowly but steadily,” said Mark Zandi, chief economist at Moody’s.

“The only difference between where we are now and the Fed’s target is the increase in housing costs,” he said. “It’s definitely slowing down now.”

Zandi expects inflation could return to target levels by the spring or summer, barring speed bumps from Trump administration policies.

Wage growth continued to cool in December, although the labor market remained strong: Average hourly wages rose 3.9% annually last month, compared with 4% in November, according to a separate BLS report Friday.

This is important because labor is a major cost to businesses, particularly in service sectors such as leisure and hospitality. Companies can raise prices when wage growth increases sharply.

Elsewhere, airfares rose 3.9% in November-December, after rising 0.4% in the previous month. Prices for used cars and trucks rose 1.2% for the month and prices for new vehicles rose 0.5%.

Increases in new and used vehicles “point to a continued increase in demand for replacement vehicles following October’s hurricanes, which will be given a new boost by the California wildfires,” Thomas Ryan, North America economist at Capital Economics, wrote in a Wednesday Notice.

Car insurance prices rose 0.4% month-over-month and 11% since December 2023.

Economists say this is largely due to a lagging effect from high vehicle inflation at the start of the pandemic. Car prices affect car insurance: As prices rise, insurers’ costs for replacing vehicles after a car accident are also much higher.

At least some of the recent rise in car prices could be due to consumers accelerating their purchases — and thus increasing demand — to avoid possible tariffs from the Trump administration, Seydl said.

Data from a recent University of Michigan consumer survey “suggests that consumers are increasingly concerned about the likely stagflationary impact of Trump’s policy plans,” Stephen Brown, deputy chief economist for North America at Capital Economics, wrote on Friday.

“The expectation that tariffs are coming is leading consumers to think it is a better time to buy durable goods,” he wrote.