Core CPI rises less than expected as inflationary pressure eases slightly in December

New data from the Bureau of Labor Statistics out Wednesday showed a key inflation gauge easing 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) rose 0.2% from the previous month, slowing from November’s 0.3% monthly increase. On an annual basis, prices rose 3.2 per cent.

Prior to December’s print, core CPI had been flat at an annualized 3.3% increase over the past four months. It was the first time since July that year-on-year core CPI saw a slowdown in price growth.

The print is the latest economic data the Federal Reserve will consider before its next interest rate decision later this month. Stocks rose 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 seeing headline CPI rise temporarily if that rise doesn’t trickle down to core CPI, and that’s what happened in December.”

Overall consumer prices rose as expected last month. CPI rose 2.9% year-on-year in December, up from November’s annual price increase of 2.7%. The annual increase was in line with economists’ expectations.

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

Seasonal factors such as higher fuel costs and continued stickiness in food inflation kept the headline figures high.

Core inflation has remained stubbornly high due to higher costs of shelter and services such as insurance and medical care. Used car prices also saw another strong rise for the third straight month, rising 1.2% in December after a 2% monthly rise in November.

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

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

“It’s a bit of a respite 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 month-to-month volatility mixed in.”

The story continues

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

Trump’s proposed policies, such as high tariffs on imported goods, tax breaks for businesses and restrictions on immigration, are seen as inflationary. And these policies may further complicate the central bank’s path forward for interest rates.

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

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

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

Accommodation outside the home fell 1% percent in December after rising 3.2% in November.

Meanwhile, the energy index rose 2.6% month-on-month after rising just 0.2% in November. On an annual basis, the energy index fell 0.5% after falling 3.2% the previous month.

In energy, gas prices rose, rising 4.4% in December after a modest 0.6% gain the previous month.

The food index rose 2.5% in December over the past year, with food prices rising 0.3% month-on-month – proving a sticky category for inflation. The indices for food at home and food away from home each rose 0.3% in December.

In particular, on a year-over-year basis, groceries rose the most since October 2023. Egg prices continued to be exceptional, rising a further 3.2% month over month after rising 8.2% in November. The price of eggs has risen 37% over the last year.

Other indices with significant gains over the past year include motor insurance (+11.3%), medical care (+2.8%), education (+4%) and leisure (+1.1%).

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [email protected].

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