US Inflation Climbs to 2.9% in December Surge

Consumer Prices Accelerate: CPI Hits 2.9% in December, Up from 2.7%

U.S. consumer inflation increased for the third consecutive month in December, driven by rising energy costs, according to government data released Wednesday, intensifying calls for the Federal Reserve to hold off on further rate cuts.

Inflation continued to climb in December, reinforcing expectations that the Federal Reserve will maintain its current stance on interest rates.

 The Labor Department reported that monthly inflation rose by 0.4%, up from 0.3% in November, driven largely by a 2.6% surge in energy prices. Energy costs accounted for over 40% of the monthly inflation increase, highlighting their significant impact. 

On an annual basis, the consumer price index (CPI) reached 2.9%, up from 2.7% the previous month, aligning with economists’ forecasts.

Core inflation, which excludes the volatile categories of food and energy, presented a more subdued outlook. It eased slightly to 3.2% on an annual basis and increased by just 0.2% month-on-month, both figures falling below expectations. 

This moderation in core inflation signals some relief for policymakers as they navigate rising headline inflation.

The slowing pace of core inflation spurred a rally in U.S. bond markets, with investors responding positively to signs of easing price pressures. Yields on Treasurys, particularly the 10-year note, fell as bond prices rose. Lower Treasury yields are a welcome development for consumers, as they often lead to reduced borrowing costs for mortgages, car loans, and other financial products. This provides some financial breathing room for households amid broader economic pressures.

The Federal Reserve is widely expected to keep interest rates unchanged at its upcoming meeting on January 28–29. Futures markets currently indicate a 97% probability that the central bank will maintain its target range of 4.25% to 4.50%. Policymakers continue to closely monitor inflation trends, particularly through their preferred measure, the personal consumption expenditures (PCE) price index, which has also been rising in recent months. This complicates the Fed’s efforts to achieve its long-term inflation target of 2%.

For President-elect Donald Trump, who takes office on Monday, the inflationary environment poses both challenges and opportunities. Rising prices could complicate his economic agenda, particularly proposals involving tariffs and immigration, which some economists warn could exacerbate inflation. However, Trump and his supporters argue that his plans for deregulation and increased energy production could help stabilize prices by addressing supply-side constraints.

Overall, December’s inflation data reflects a mixed economic landscape. While headline inflation continues to rise, the slowdown in core inflation provides some reassurance to markets and policymakers. The Federal Reserve’s cautious approach appears prudent as it balances inflation risks with the need for economic stability. Meanwhile, the impact of Trump’s policies on inflation will likely shape the economic narrative in the months ahead, adding another layer of complexity to an already dynamic environment.