Gas prices were the main contributor to the increase in inflation in December. (iStock)

Annual inflation rose to 2.9% in December, rising slightly above the annual inflation rate of 2.7%. of the previous monthaccording to the consumer price index (CPI) published by the Bureau of Labor Statistics (BLS).

Inflation rose 0.4% month-on-month in December, slightly beating expectations. The core CPI, which excludes food and energy, rose 0.2% in December, below estimates after four consecutive months of 0.3% increases. This brought the year-on-year rate to 3.2%.

The cost of energy rose 2.6% and was the largest contributor to the monthly increase in December, accounting for nearly 40% of the monthly increase for all items. Gas grew by 4.4% during the month. Food prices continued to rise, rising 0.3% last month after a 0.4% rise in November.

“The December CPI report brings a mix of news, including some optimism,” US First Senior Economist Sam Williamson said in a statement. “While the core CPI rose and beat expectations, the monthly increase in the less volatile and more closely watched core CPI slowed and came in below expectations.

“This surprise drop in Core CPI is encouraging, but one month does not set a trend,” Williamson continued. “The Federal Reserve will likely need to see sustained progress before considering any rate cuts.”

The Federal Reserve cut interest rates by a quarter of a percentage point in December. rates drop from 4.25% to 4.5%but the minutes of the Federal Open Market Committee The meeting showed that there is growing concern about higher inflation and a clear divide among Fed members over whether to continue dialing rates back. Some expressed support for keeping the central bank’s key rate unchanged, and most officials said the decision to cut rates was a close call, according to the minutes. The Fed’s next meeting will be on January 28 and 29.

“December’s CPI numbers indicate that inflation is not cooling at a pace that meets the Fed’s target,” said Ryan Marshall, CEO of Voxtur Analytics. “As a result, those who were optimistic that the Fed would cut interest rates further in 2025 are now readjusting their forecasts to expect fewer rate cuts this year.”

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Housing costs remain high

Housing costs rose 0.3% month-on-month, the same pace as the previous month, which helped reduce the annual inflation rate to 4.6% from 4.7% last month, according to Realtor.com Chief Economist Danielle Hale.

Despite the slight progress, housing costs remain above their pre-pandemic range, which averages 3.3%, according to Hale. High costs are likely to hold back further rate cuts, affecting the level of long-term rates such as mortgages, which remain just below 7%.

“Right now, the market does not place high odds on a cut before June,” Hale said in a statement. “The labor market ended 2024 with a bang as hiring picked up and the unemployment rate fell to 4.1% in December. With half of full employment in the Fed’s dual mandate in a stronger base than it looked three to six months ago, the Fed is likely to be patient, especially if inflation remains above target.”

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Housing prospects are uncertain

According to Hale, high mortgage rates will further stall the housing market despite willing buyers. Home ownership remains a central goal for approximately 75% of Americans surveyed by Realtor.combut affordability remains a major concern for many.

“Existing home sales improved in recent months following the fall’s lower mortgage rates, but as rates have moved back up, our expectations for home sales have declined,” Hale said. .

What’s ahead for housing is more of the same for mortgage rates, and house prices are expected to continue to rise. One bright spot is that the incoming president donald trump The administration could spur more substantial economic growth and thus higher incomes, giving Americans more purchasing power. In addition, lower household tax rates are expected to increase household disposable income even if incomes do not increase, according to the Realtor.com Housing Forecast.

“For the year 2025, Realtor.com’s housing forecast projects a modest decline in mortgage rates to drive a modest increase in home sales,” Hale said. “Every drop in the inflation rate will help bring that expectation closer to reality.”

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