Consumer prices rose faster in December, the latest sign that the Federal Reserve's fight against inflation may be faltering.
The consumer price index rose 0.4 percent since November and 2.9 percent from a year ago, the Labor Department said Wednesday. It was the fastest increase in overall prices in a month since February, driven in part by another sharp rise in the prices of eggs and other food products.
The “core” inflation indicator, which strips out volatile food and fuel prices to give a better sense of the underlying trend, was more encouraging: The index rose 3.2 percent from a year earlier, after three months of declines had subsequently increased by 3.3 percent. Forecasters did not expect core inflation to slow.
Inflation has cooled significantly since mid-2022, when it reached a four-decade high of over 9 percent. More recently, however, progress has slowed or even stopped altogether: by some measures, inflation has barely improved in 2024.
“If you step back and look at the broader inflation picture, we're not really making any progress,” said Sarah House, senior economist at Wells Fargo. “Although there has been progress, the pace has been really disappointing.”
Prices continued to rise in some categories that matter most to consumers. Food prices, which were relatively flat in late 2023 and early 2024, are rising again, led by egg prices, which have risen by more than a third over the past year. Gas prices rose 4.4 percent in December, although they were lower than a year ago.
And with inflation proving more stubborn than policymakers had hoped, Americans will likely have to wait longer before seeing lower interest rates on their mortgages, auto loans and credit card balances.
Fed officials have expressed increasing concern about the slow progress on inflation, and while some details in Wednesday's report were encouraging, the data is unlikely to do much to ease those concerns. Stock prices rose and bond yields fell on Wednesday as investors breathed a sigh of relief that inflation data wasn't worse. The S&P 500 rose 1.8 percent, its best daily performance since the November election. The 10-year Treasury yield, which underpins interest rates on everything from mortgages to corporate loans, fell 0.15 percentage point, the biggest daily decline in nearly six months.
At the same time, continued strength in the labor market — including data released last week showing stronger-than-expected job growth in December — has made policymakers less worried that their efforts to curb price increases would lead to layoffs or hurt the overall economy.
As a result, investors generally expect the central bank to keep interest rates stable at its meeting later this month. That would break a streak of three consecutive rate cuts, and some forecasters now say policymakers may not cut rates at all this year.
“With a stabilizing labor market, inflation already above target and risks continuing to rise, I think it is difficult to make the case for further cuts,” said Aditya Bhave, an economist at Bank of America.
Most Fed officials have said they still expect inflation to cool gradually, and economists agree there is reason for optimism. Housing inflation — by far the biggest monthly expense for most families and one of the most stubborn categories of consumer prices — has finally begun to ease: Housing prices rose 4.6 percent in December from a year earlier, the smallest increase since December 12 months in almost three years. Prices for non-housing services – a metric that Fed officials have closely watched in recent years as an indicator of overall inflation trends – also continued to cool. And data released Tuesday showed wholesale prices rose more slowly in December.
But policymakers face a new source of uncertainty: President-elect Donald J. Trump. The new president has promised to impose high tariffs on imports, restrict immigration and cut taxes – measures that economists warn could push prices further higher, although it is unclear by how much. Some Fed officials have said they are already factoring these measures into their inflation outlook.
With price increases proving stubborn and the job market looking strong, policymakers are unlikely to cut interest rates again until they have a clearer picture of what actions the new government is taking and how they will affect the economy, James Egelhof said , chief U.S. economist at BNP Paribas.
“The Fed has the luxury of a little bit of time to wait for President Trump to take office and see exactly what happens,” he said.
Joe Rennison contributed reporting.