The consumer price index (CPI) experienced a seasonally adjusted increase of 0.4% for the month of December, as reported by the Bureau of Labor Statistics. This rise places the annual inflation rate at 2.9%, aligning with the expectations of economists surveyed by Dow Jones, who had also predicted a 0.3% monthly rise.
In December, rising prices were seen across various sectors, notably in energy, which surged due to a 4.4% increase in gasoline prices, contributing to approximately 40% of the overall CPI increase for the month. Food prices also saw a slight rise, up 0.3% for the month. Over the course of the year, food prices increased by 2.5%, while energy costs slightly decreased by 0.5%.
Excluding the volatile categories of food and energy, the core CPI annual rate dropped to 3.2%, better than the previous month’s figures and slightly below the 3.3% forecast. The monthly core measure rose just 0.2%, reflecting signs of stabilizing inflation trends.
The housing market showed signs of modest relief, with shelter prices increasing by 0.3%, marking a year-over-year gain of 4.6%, the lowest increase since January 2022. Furthermore, prices in the services sector (excluding rents) increased by 4%, which is the slowest rate since February 2024.
The market responded positively to the CPI data, with stock futures rising and Treasury yields dropping. Market analysts believe the latest inflation figures may influence the Federal Reserve’s approach in its upcoming policy meeting, as they suggest a potentially less aggressive stance regarding interest rate hikes.
Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, commented that while the CPI data is encouraging, it signals that the Fed still has work ahead to achieve its 2% inflation target. The current inflation environment shows a gradual reduction from previous highs, but challenges in key sectors such as gas, food, and housing persist.
Job growth has been notably strong, with a gain of 256,000 jobs in December, which introduces further complexity to the inflation outlook and the Fed’s decision-making process. Despite concerns of stickier inflation prompting potential interest rate considerations, the overall trends suggest an environment that might lead to gradual improvements in the inflation landscape.
In a time filled with economic uncertainty, the latest CPI report brings a glimmer of hope. It indicates that while inflation continues to present challenges, there are signs that the pressures in critical areas may be beginning to ease, providing a foundation for a more stable economic future.