Core CPI rises less than forecast as inflation pressures ease slightly in December

New data from the Bureau of Labor Statistics out Wednesday showed that a key inflation metric eased for the first time since July.

On a “core” basis, which strips out the more volatile costs of food and gas, the December Consumer Price Index (CPI) climbed 0.2% over the prior month, a deceleration from November’s 0.3% monthly gain. On an annual basis, prices rose 3.2%.

Prior to December’s print, core CPI had been stuck at a 3.3% annual gain for the past four months. It was the first time since July that year-over-year core CPI saw a deceleration in price growth.

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

“Markets reacted positively this morning for a good reason: the Federal Reserve is ok with watching the headline CPI go up temporarily if that increase does not spill over into the core CPI, and this is what happened in December.”

Headline consumer prices rose as forecast last month. The CPI increased 2.9% over the prior year in December, an uptick from November’s 2.7% annual gain in prices. The yearly increase matched economist expectations.

The index rose 0.4% over the previous month, ahead of the 0.3% increase seen in November and also on par with economists’ estimates.

Seasonal factors like higher fuel costs and continued stickiness in food inflation kept the headline figures elevated.

Core inflation has remained stubbornly elevated due to higher costs for shelter and services like insurance and medical care. Used car prices also saw another strong uptick for the third consecutive month, rising 1.2% in December after a 2% monthly gain in November.

Although inflation has been slowing, it has remained above the Federal Reserve’s 2% target on an annual basis.

“It hasn’t been steady on inflation,” Claudia Sahm, chief economist at New Century Advisors and former Federal Reserve economist, told Yahoo Finance’s Morning Brief program. “It’s been quite uneven but it is good to see some progress in the right direction. And I think that that’s the big piece of this. We’ve been in a very ‘wait and see’ on the inflation front. And that’s very much where the Fed is lined up.”

“It is a bit of a breather to get some ‘not not’ bad news this morning,” she continued. “But it’s really not a game changer. It’s a lot more of what we’ve seen with the month-to-month volatility mixed in.”

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

Trump’s proposed policies, such as high tariffs on imported goods, tax cuts for corporations, and curbs on immigration, are seen as inflationary. And those policies could further complicate the central bank’s path forward for interest rates.

Notable callouts from the inflation print include the shelter index, which rose 4.6% on an unadjusted, annual basis, slightly lower than November’s 4.7% uptick and the smallest 12-month increase since January 2022. The index rose 0.3% over the prior month, matching November.

Sticky shelter inflation has largely been blamed for higher core inflation readings over the past few months, according to economists.

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

The lodging away from home index fell 1% percent in December after rising 3.2% in November.

Meanwhile, the energy index rose 2.6% month over month after rising just 0.2% in November. On a yearly basis, the energy index was down 0.5% after a 3.2% decline the previous month.

Within energy, gas prices surged, rising 4.4% in December after a modest 0.6% uptick the previous month.

The food index increased 2.5% in December over the last year, with food prices rising 0.3% month over month — proving to be a sticky category for inflation. The indexes for food at home and food away from home each increased 0.3% in December.

Notably, on an annual basis, groceries are up the most since Oct. 2023. Egg prices continued to be a standout, increasing another 3.2% month over month after rising 8.2% in November. The price of eggs has risen 37% over the last year.

Other indexes with notable increases over the last year include motor vehicle insurance (+11.3%), medical care (+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 alexandra.canal@yahoofinance.com.

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