In December, inflation showed an upward trend for the third consecutive month, driven primarily by increasing food and energy costs, reaching a peak not seen in five months. This uptick signals a halt in the promising deceleration of price increases that was observed in the previous spring and summer. Nonetheless, an underlying inflation measure demonstrated a slight decrease, hinting that overall inflation may begin to decline through the first half of 2025. However, economists express concern that the trade and immigration policies proposed by President-elect Donald Trump could potentially elevate costs later in the year.
According to the Labor Department’s consumer price index, overall consumer prices rose by 2.9% year over year, an increase from 2.7% in November, and marking the highest annual rate since July. Economists had anticipated this rise, given the recent inflation dynamics. On a monthly basis, prices increased by 0.4%, marking the largest monthly rise since March.
Core inflation, which excludes the more volatile food and energy prices, rose by 0.2%, easing from a steady 0.3% rise observed over the preceding four months. This change brought the annual core inflation down to 3.2% from 3.3% in previous months.
Over the last few months, inflation rates have stalled after a significant decline earlier in 2024. The rising costs of services such as healthcare and automobile repairs, attributed to increasing labor expenses and auto prices—relics of the COVID-19 pandemic—have contributed to this situation. Meanwhile, goods prices initially fell as pandemic-related supply-chain issues were resolved but have recently stabilized or begun to rise again.
Expectations for future inflation seem mixed. Firms like Goldman Sachs anticipate a slowdown in wage growth and rent increases, contributing to lower inflation rates in the coming months, with predictions of overall price growth dropping to 2.3% and core inflation easing to 2.7% by April. However, projections also suggest that the introduction of tariffs by Trump and his immigration policies could reintroduce upward pressures on prices.
The persistent elevated inflation rates may lead the Federal Reserve to reconsider its current pattern of interest rate cuts. Following substantial job growth in December, with employers adding 256,000 positions, the strength of the labor market could reignite inflation, potentially limiting the Fed’s inclination to cut rates even further.
In terms of specific categories, gasoline prices observed a slight decline of 1.5% in December, though they increased when adjusted for seasonality. On the grocery front, food prices rose modestly by 0.3%, with significant increases in eggs and other staples. Rent slightly elevated by 0.3%, indicating a slowdown from recent years, yet still contributing significantly to overall inflation.
While the inflation landscape remains complex, with various factors influencing future trends, there is a hopeful outlook suggesting that as wage and rent growth slow, we may witness an eventual dip in inflation rates, easing the financial pressure on consumers moving forward.