Here’s the inflation breakdown for December 2024 – in one chart

On January 16, 2025By Littum

A customer browses eggs on partially empty shelves at a grocery store in Lawndale, Calif., on Jan. 2, 2025.

Patrick T. Fallon | AFP | Getty Images

Inflation rose in December on the back of higher energy and food prices, according to consumer price index.

The CPI, a gauge of inflation, rose 2.9% in December 2024 from a year earlier, the Bureau of Labor Statistics reported Wednesday.

That’s up from an annual inflation rate of 2.7% in November and from a recent low of 2.4% in September.

While the upward movement may seem discouraging, evidence suggests inflation should resume its downward trend in 2025, economists said.

But they warn that President-elect Donald Trump’s incoming administration could halt or reverse that progress if it pursues policies such as tariffs and tax cuts that, depending on their scope, could be inflationary.

“The main wild card here is policy,” Joe Seydl, a senior market economist at JP Morgan Private Bank, said of the path of inflation.

The CPI measures how fast prices are rising or falling for a basket of goods and services, from haircuts to coffee, clothes and concert tickets.

CPI inflation is down significantly from its pandemic-era 9.1% in June 2022. However, it remains above the Federal Reserve’s target. The central bank aims for an annual interest rate of 2% in the long term.

(The Fed uses a different but similar measure of inflation, the personal consumer price index. CPI readings tend to run about 0.2 to 0.3 percentage points higher, Seydl said.)

“We’re not that far off,” Seydl said. “By the end of this year, we expect year-over-year rates to be back in those targets.”

Eggs are a ‘swing factor’

There were some problems in December.

For example, grocery prices rose 0.3% from November to December, according to CPI data. (An increase of about 0.2% a month is in line with hitting the Fed’s target, economists said.)

Eggs are a “swing factor” contributing to this increase, Seydl said.

An outbreak of bird flu, known as bird flu, in the United States has had a “significant impact” on egg prices, he said. The virus is highly contagious among birds and has killed millions of laying chickens, reducing the egg supply.

Egg prices rose 3.2% from November to December, the largest increase for any consumer goods item according to the CPI. They are up 37% since December 2023.

Brandon Bell | Getty Images News | Getty Images

Gasoline inflation also rose: Prices rose 4.4% from November to December, according to CPI data.

Consumers don’t see it in the real world, though: Average prices at the pump actually fell about two cents last month, to $3.01 per gallon. gallon on Dec. 30 from $3.03 on Dec. 2, according to the weekly Energy Information Administration data.

Federal statisticians adjust inflation data for seasonal patterns; Gasoline prices fell less than usual in December, and the CPI registered this lower-than-usual decline as an inflation increase, Seydl said.

Gasoline prices have fallen more than 3% in the past year, according to the CPI. Groceries have increased by 1.8 per cent.

Shelter inflation continues to retreat

Meanwhile, there were some bright spots in the CPI report, such as shelter.

The 4.6 per cent annual inflation rate for housing in December was the lowest since January 2022. As the largest component of the price index, it has a significant influence on the path of inflation.

Economists prefer to look at a measure known as “core” CPI, which strips out volatile food and energy prices, to get a more accurate reading of underlying inflationary dynamics.

There the picture is better: Core CPI fell to 0.2% month-on-month in December, after holding steady at 0.3% month-on-month since August. Annual core inflation fell to 3.2% from 3.3%.

Core inflation falls to 3.2% in December, less than expected

“It is encouraging that inflation continues to reverse, slowly but steadily,” said Mark Zandi, chief economist at Moody’s.

“The only difference between where we are and the Fed’s target is housing cost growth,” he said. “It’s now definitely slowing down.”

Zandi estimates that inflation could return to its target level by spring or summer, barring a speed bump from Trump administration policies.

Wage growth continued to slow in December, although the labor market remained strong: Average hourly wage grew at an annual rate of 3.9% last month, down from 4% in November, according to a separate BLS report issued Friday.

This is important because labor is a major input cost for businesses, especially those in the service sector such as leisure and hospitality. Companies can raise prices if wage growth increases.

The Trump tariff threat could affect consumer purchases

Elsewhere, airfares rose 3.9% from November to December after rising 0.4% the previous month. Used car and truck prices rose 1.2% over the month, and new vehicle prices rose 0.5%.

Increases in new and used vehicles “point to a continued increase in demand for replacement vehicles after October’s hurricanes, which will get a renewed boost from the California wildfires,” Thomas Ryan, North America economist at Capital Economics, wrote in a note Wednesday.

Car insurance prices rose 0.4% on the month and are up 11% since December 2023.

This is largely due to a lag effect from high vehicle inflation earlier in the pandemic, economists said. Car rates factor into motor vehicle insurance policies: When rates are high, the costs for insurance companies to replace vehicles after a car accident are also much higher.

At least some of the recent rise in auto prices may be due to consumers speeding up purchases — thus increasing demand — to avoid potential tariffs imposed by the Trump administration, Seydl said.

Data from a recent University of Michigan Consumer Sentiment Survey “suggests that consumers are becoming more concerned about the likely stagflationary impact of Trump’s policy plans,” Stephen Brown, vice president of North America at Capital Economics, wrote on Friday.

“The expectation that tariffs will come means that consumers are judging that it is a better time to buy durable goods,” he wrote.