Core CPI rises less than expected as inflationary pressures ease slightly in December

new data from the Bureau of Labor Statistics on Wednesday showed a key inflation metric fell for the first time since July.

On a “core” basis, which strips out the more volatile costs of food and gas, December’s consumer price index (CPI) rose 0.2% from the previous month, a slowdown from the monthly gain of 0.3% in November. In year-on-year terms, prices rose by 3.2%.

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

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

“Markets reacted positively this morning for good reason: The Federal Reserve is willing to see headline CPI rise temporarily if that increase is not spilled over to core CPI, and that’s what happened in the December,” Raymond James chief economist Eugenio said. Aleman wrote in a note Wednesday.

Overall consumer prices rose as expected last month. The CPI rose 2.9% from a year earlier in December, a rebound of the annual price gain of 2.7% in November. The annual increase matched economists’ expectations.

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

Seasonal factors such as higher fuel costs and continued stiffness in food inflation kept overall figures high.

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

Core inflation has remained stubbornly high due to higher housing costs and services such as insurance and medical care. Used car prices also saw another strong increase for the third consecutive month, up 1.2% in December after a 2% monthly increase in November.

Although inflation has slowed, it has remained above The Federal Reserve’s 2% target on an annual basis.

“Inflation has not been consistent,” 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 uneven, but it’s good to see some progress in the right direction. And I think that’s the big piece of it. We’ve been very much on the ‘wait and see’ front on the inflation front. And that’s very very much where the Fed is aligned.”

“It’s a bit of a respite to get some bad news this morning,” he continued. “But it’s not really a game changer. It’s a lot more than we’ve seen with month-to-month volatility mixed in.”

The election of Donald Trump as the nation’s next president has further complicated the outlook, with some economists arguing the US could confront another resurgence of inflation if Trump follows through on his key campaign promises. The president-elect will take office next week.

Trump’s proposed policies, such as high tariffs on imported goods, corporate tax cuts and immigration restrictions, are considered inflationary. And these policies could make it even more complicated the central bank’s path forward for interest rates.

Highlights from the inflation print included the shelter index, which rose 4.6% on an unadjusted annual basis, slightly lower than November’s 4.7% rise and smallest 12-month increase since January 2022. The index rose 0.3% from the previous month, the same as November.

Sticky shelter inflation It has been largely blamed for higher core inflation readings in recent months, according to economists.

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

The index for accommodation away from home 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. Year-on-year, the energy index fell 0.5% after a 3.2% decline the previous month.

Within energy, gas prices rose 4.4% in December after a modest 0.6% rise the previous month.

Gas prices rose 4.4% in December after a modest increase of 0.6% the previous month (Courtesy: REUTERS/Kevin Lamarque) · REUTERS / Reuters

The food index rose 2.5% in December over last year, and food prices rose 0.3% month-on-month, proving to be a sticky category for the inflation Indices for eating at home and eating out rose 0.3% in December.

Notably, on an annual basis, groceries have risen the most since October 2023. Egg prices continued to stand out, rising another 3.2% month-on-month after rising 8.2% in November. The price of eggs has increased by 37% in the last year.

Other indexes with notable increases over the past year include motor vehicle insurance (+11.3%), medical assistance (+2.8%), education (+4%) and recreation (+1.1%).

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

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