Inflation increased again in December as stubbornly high prices continued to strain consumer finances ahead of the Federal Reserve’s next interest rate decision.

The Department of Labor said Wednesday that the consumer price index (CPI) — a broad measure of the cost of everyday goods like gas, groceries and rent — rose 0.4% in December, while rising to 2.9% annually. The 2.9% reading is the highest since July 2024.

The month-on-month reading was slightly warmer than economists polled by LSEG had expected, while the annual figure was in line with expectations. The overall figure was up from November’s reading of 2.7%, while monthly price growth continued at the same pace as a month ago.

So-called core prices, which exclude the more volatile measures of gasoline and food to better gauge trends in price growth, rose 0.2% month-on-month in December, in line with expectations and down from 0. 3% of the previous month. Core prices rose 3.2% in December from a year ago, slightly cooler than expected and down from November’s 3.3%.

AMERICAN PRODUCER PRICES RISE MODERATELY IN DECEMBER

The consumer price index (CPI) rose 0.4% month-on-month and rose 2.9% from a year ago in December. (Justin Sullivan/Getty Images/Getty Images)

The report showed that inflationary pressures in the US economy continue to persist despite progress in bringing inflation closer to the Federal Reserve’s 2% target over the past year.

High inflation has created severe financial pressures for most American households, which are forced to pay more for everyday necessities such as food and rent. Price hikes are especially hard on lower-income Americans, who tend to spend more of their already stretched paychecks and have less flexibility to save money.

Energy costs accounted for more than 40% of the monthly rise in the CPI, with the Bureau of Labor Statistics’ energy index rising 2.6% in December after energy prices showed little change in recent months. Gasoline prices rose by 4.4% during the month of December.

Food prices it also increased in December by 0.3% monthly. Both dining at home and dining out rose 0.3% last month.

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Prices for meat, poultry, fish and eggs increased by 0.6% during the month and by 4.2% compared to a year ago. Egg prices rose 3.2% in December and were up 36.8% from a year ago amid a bird flu outbreak that has hit production.

Housing costs it rose 0.3% in December, the same as the increase seen in November. The housing index has increased by 4.6% over the past year, which is the smallest increase in 12 months since January 2022.

Transportation prices rose 0.5% in December and were up 7.3% from a year ago. Car insurance prices they rose 0.4% in December and were up 11.3% from a year ago. Motor vehicle repair costs decreased 0.6% in December, but rose 7.2% annually.

Air fares rose 3.9% in December and were up 7.9% from a year ago.

The data comes as a Federal Reserve is scheduled to meet later this month, when policymakers will determine whether to cut interest rates or hold them steady with inflation above the central bank’s target.

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Federal Reserve Chairman Jerome Powell signaled last month that policymakers could slow the pace of rate cuts in response to economic data. (Ting Shen/Bloomberg via Getty Images/Getty Images)

Jerome Powell, chairman of the Fed noted after policymakers met last month and cut the benchmark federal funds rate to a range of 4.25% to 4.5% that “we are at or near a point where it will be appropriate to hold back the pace of new adjustments”.

Markets expect the Fed to hold rates steady at the next meeting and the December CPI print did not alter those expectations, with the probability of rates remaining at their current level above 97%, little changed compared to yesterday and up to 94.7% a week ago. according to the CME FedWatch tool.

“Today’s CPI may help the Fed feel a little more dovish,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “It won’t change expectations for a pause later this month, but it should dampen some of the talk about the possibility of the Fed raising rates. And judging by the market’s initial response, investors seemed to sense a relief after a few months of more subdued inflation readings.”

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Stocks rose after the CPI print, with the S&P 500 up about 1.3%, while bond yields fell with the 10-year US Treasury note falling below 3 .7%

“For all the noise, inflation is no longer a concern,” said EY chief economist Gregory Daco. “The concern is that high prices are discouraging consumer spending for many lower-middle-income families and the risk of further inflationary pressures from deregulation, immigration restrictions, tariffs and tax cuts in a environment of ‘fragile supply'”.