Core CPI rises less than forecast as inflation pressure eases slightly in December

New data from the Bureau of Labor Statistics released Wednesday showed that a key measure of inflation eased for the first time since July.

On a “core” basis, which excludes the more volatile costs of food and gas, the consumer price index (CPI) rose 0.2% in December compared to the previous month, slowing from the 0.3% monthly rise in December November represents. On an annual basis, prices rose by 3.2%.

Before the December release, the core CPI was at an annual increase of 3.3% over the past four months. It was the first time since July that the core CPI showed a slowdown in price growth year-on-year.

The print is the latest economic data that the Federal Reserve will consider before its next interest rate decision later this month. Stocks rallied on the report, with the 10-year Treasury yield (^TNX) falling 12 basis points to trade below 4.7%.

Read more: What the Fed’s interest rate cut means for bank accounts, CDs, loans and credit cards

“Markets reacted positively this morning for good reason: the Federal Reserve is comfortable with headline CPI rising temporarily if that rise does not impact core CPI, and that is exactly what happened in December,” Eugenio said, Raymond James Aleman, chief economist, wrote in a Wednesday note.

Overall consumer prices rose as forecast last month. The CPI rose 2.9% year-on-year in December, up from the 2.7% annual price increase in November. The annual increase was in line with economists’ expectations.

The index rose 0.4% from the previous month, above November’s 0.3% rise and also in line with economists’ estimates.

Seasonal factors such as higher fuel costs and ongoing food inflation kept overall numbers high.

Federal Reserve Chairman Jerome Powell gestures as he speaks at a press conference after the Monetary Policy Committee meeting on December 18, 2024 in Washington, DC. The Federal Reserve cut interest rates by a quarter point on December 18, signaling a slower pace of cuts amid uncertainty over inflation and U.S. President-elect Donald Trump's economic plans. (Photo by ANDREW CABALLERO-REYNOLDS / AFP via Getty Images) — Federal Reserve Chairman Jerome Powell gestures while speaking at a press conference after the Monetary Policy Committee meeting on December 18, 2024 in Washington, DC. (ANDREW CABALLERO-REYNOLDS/AFP via Getty Images) · ANDREW CABALLERO-REYNOLDS via Getty Images

Core inflation remained stubbornly elevated due to higher costs for accommodation and services such as insurance and medical care. Used car prices also rose sharply again for the third month in a row, rising 1.2% in December after rising 2% monthly in November.

Although inflation has slowed, it remains above the Federal Reserve’s target of 2% on an annual basis.

“Inflation has not been stable,” Claudia Sahm, chief economist at New Century Advisors and a former Federal Reserve economist, told Yahoo Finance’s Morning Brief program. “It’s been pretty inconsistent but it’s good to see some progress in the right direction. And I think that’s the big part of it. We have had to wait and see on the inflation front. And that’s a lot where the Fed is lined up.

“It’s a bit of a breather to get some ‘not not’ bad news this morning,” she continued. “But it’s really not a game changer. It’s a lot more of what we’ve seen with monthly volatility.”

The election of Donald Trump as the country’s next president has further complicated the outlook, with some economists arguing that the US could face a fresh rise in inflation if Trump follows through on his key campaign promises. The president-elect will take office next week.

Trump’s proposed measures, such as high tariffs on imported goods, corporate tax cuts and immigration restrictions, are viewed as inflationary. And these measures could complicate the central bank’s path forward on interest rates.

Notable clues from the inflation statistics include the Shelter Index, which rose 4.6% on an unadjusted annual basis, slightly less than November’s 4.7% increase and the smallest 12-month increase since January 2022. The index increased by 0.3% compared to the previous month, which corresponds to November.

Economists say the high core inflation rate in recent months is largely attributed to high inflation in stuck housing.

The rent and owner equivalent rent (OER) index rose 0.3% each in November-December, a slight acceleration from the previous month’s 0.2% increase for both categories. Owner’s Equivalent Rent is the hypothetical rent a homeowner would pay for the same property.

The out-of-home accommodation index fell 1% in December after rising 3.2% in November.

Meanwhile, the energy index rose 2.6% month-on-month after rising just 0.2% in November. On an annual basis, the energy index fell 0.5%, after declining 3.2% in the previous month.

In the energy sector, gas prices jumped, rising 4.4% in December after rising moderately by 0.6% in the previous month.

Gas prices rose 4.4% in December after rising slightly by 0.6% the previous month (Photo: REUTERS/Kevin Lamarque) · REUTERS/Reuters

The food index rose 2.5% in December last year, with food prices rising 0.3% month on month – proving a difficult category for inflation. The indices for eating at home and eating out each rose 0.3% in December.

Read more: Everyday prices continue to rise, even with more stable overall inflation

What is noteworthy is that groceries have risen more year-on-year than at any time since October 2023. Egg prices continued to stand out, rising a further 3.2% month-on-month after rising 8.2% in November. The price of eggs has increased by 37% in the last year.

Other indices with notable gains over the last year include vehicle insurance (+11.3%), medical care (+2.8%), education (+4%) and leisure (+1.1%).

Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and send her an email at [email protected].

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Core CPI rises less than forecast as inflation pressure eases slightly in December

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