Prices consumers pay for a variety of goods and services rose again in December, but ended 2024 with slightly better news on inflation, particularly the housing market.

The consumer price index rose a seasonally adjusted 0.4% month-over-month, translating to a 12-month inflation rate of 2.9%, the Bureau of Labor Statistics reported Wednesday. Economists surveyed by Dow Jones had expected values ​​of 0.3% and 2.9%, respectively.

However, excluding food and energy, the annual core consumer price index rate was 3.2%, slightly lower than the previous month and slightly better than the forecast of 3.3%. The core key figure rose by 0.2% on a monthly basis, also 0.1 percentage points less than expected.

Much of the CPI increase was due to a 2.6% rise in energy prices over the month, boosted by a 4.4% increase in gasoline prices. According to the BLS, this accounted for about 40% of the index’s gain. Food prices also rose by 0.3% over the month.

On an annual basis, food prices rose 2.5% in 2024, while energy prices fell 0.5%.

Emergency shelter prices, which account for about a third of the CPI weight, rose 0.3% but were 4.6% higher than a year ago, the smallest one-year increase since January 2022.

Stock market futures rose sharply after the release, while Treasury yields fell.

Although the numbers compare favorably to forecasts, they still show that the Federal Reserve still has a lot of work to do to meet its 2% inflation target. Headline inflation fell from 3.3% in 2023, while core inflation was 3.9% a year ago.

“Today’s consumer price index could help the Fed feel a little more dovish. It will not change expectations for a pause later this month, but it is likely to dampen some discussion of a possible Fed rate hike,” said Ellen Zentner, chief economist strategist at Morgan Stanley Wealth Management. “And judging by the market’s initial reaction, investors appeared to be feeling a sense of relief after a few months of more difficult inflation readings.”

This week’s inflation readings – the BLS released its product price index on Tuesday – are expected to keep the Fed in check at its policy meeting later this month.

While the market cheered the CPI release, the news for workers was less positive: Inflation-adjusted monthly wages fell 0.1%, up just 1% from a year ago, the BLS said in a separate news release.

Otherwise, the information in the inflation report was mixed.

Used car and truck prices rose 1.2%, while new car prices also rose 0.5%. Transportation services rose 0.5%, rising 7.3% year-on-year, while egg prices rose 3.2%, an annual increase of 36.8%. Car insurance rose 0.4% and was up 11.3% annually.

“The inflation rate is currently struggling with a ‘last mile’ problem where progress in reducing price pressures has slowed,” said Sung Won Sohn, a professor at Loyola Marymount University and chief economist at SS Economics. “The key drivers of inflation, including gasoline, food, vehicles and housing, remain ongoing challenges. However, there are signs of hope that long-term inflation pressures may ease further, supported by weaker trends in critical sectors such as housing and labor costs.”

According to the report, markets are jittery about the inflation situation and the Fed’s possible response. Tariffs and mass deportations promised by President-elect Donald Trump have added to inflation concerns.

December job growth was much stronger than economists expected, with the 256,000 gain further raising concerns that the Fed could remain on hold for a longer period and even consider raising interest rates if inflation proves more stubborn than expected .

December’s CPI report and relatively weak wholesale prices on Tuesday show that while inflation is not cooling dramatically, it is not showing any signs of accelerating again either.

A separate report from the New York Fed on Wednesday showed that manufacturing activity slowed but prices paid and received rose significantly.

Futures prices continued to suggest that the Fed would remain almost certain at its meeting on January 28 and 29, but was more likely to expect two rate cuts during the year, assuming there would be increases of one, according to CME Group quarter percentage point. Markets believe the next cut is likely to occur in May or June.

The Fed uses the Commerce Department’s Personal Consumption Expenditure Price Index as its primary forecasting measure of inflation. However, the CPI and PPI metrics are included in this calculation.

According to Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, the two readings likely mean core PCE will rise just 0.2% in December, keeping the annual rate at 2.8%.