CPI rose in December, a sign of the Fed’s fight against inflation

Consumer prices rose faster in December, the latest sign that the Federal Reserve’s fight against inflation may be on hold.

The Consumer Price Index rose 0.4 percent from November, and was up 2.9 percent from a year earlier, the Labor Department said Wednesday. It was the fastest rise in overall prices in a month since February, led by higher prices for eggs and other goods.

The “core” measure of inflation, which strips out food and fuel prices to give a better sense of underlying trends, was more encouraging: The index rose 3.2 percent from a year earlier after three consecutive months of gains of 3.3 percent. Core prices were not expected to decrease.

Inflation has slowed significantly since mid-2022, after reaching more than 9 percent for four decades. Recently, however, progress has slowed, or even stopped altogether: By some measures, the cost of living has barely improved by 2024.

“When you step back and look at the overall inflation situation, we’re not going anywhere,” said Sarah House, senior economist at Wells Fargo. “While progress has been made, the pace has been disappointing.”

Fed officials have expressed concern about the slow pace of inflation, and while some of the details in Wednesday’s report are encouraging, it is likely but the data will not do much to alleviate these concerns.

Meanwhile, continued strength in the labor market — including data released last week that showed an unexpectedly strong increase in employment in December — has made policymakers nervous. will not worry too much that their efforts to curb inflation lead to crowding out or damage to the wider economy. .

As a result, investors expect the central bank to keep interest rates unchanged at the meeting at the end of this month. That would break a streak of three consecutive rate cuts, and some forecasters say policymakers may not lower rates this year.

“With the labor market holding firm, with inflation already above target and with risks looming to the upside, I think it’s hard to make a case for cuts,” Aditya said. Bhave, an economist at Bank of America.

Most Fed staff said they still expect inflation to slow, and economists agree there is reason to be optimistic. Inflation – the biggest monthly expense for most families, and one of the most stubborn categories of consumer prices – has finally started to ease : Home prices rose 4.6 percent in December from a year earlier, the smallest increase in 12 months. in about three years. Data released on Tuesday also showed that wholesale prices rose slightly in December.

But policymakers are facing a new source of uncertainty: President-elect Donald J. Trump. The incoming president has promised to raise tariffs on imports, limit immigration and cut taxes — policies that economists warn could raise prices, though it’s unclear by how much. Some Fed officials said they are already basing those policies on their inflation outlook.

With inflation evidently stubborn and the labor market looking strong, policymakers may hold off on cutting rates again until they have a clearer picture of the new government’s policies and the impact on the economy, said James Egelhof, BNP’s chief US economist. Paribas.

“The Fed has some time to wait for President Trump to take office and see what’s going on,” he said.