Prices for various goods and services increased in December, ending 2024 with some positive news on inflation, particularly in housing. The consumer price index rose by 0.4% on a monthly basis, resulting in a 2.9% inflation rate over 12 months, as reported by the Bureau of Labor Statistics. Economists had anticipated readings of 0.3% and 2.9%.
Excluding food and energy, the core CPI annual rate was 3.2%, slightly lower than the previous month and better than the 3.3% forecast. The core measure increased by 0.2% monthly, 0.1 percentage point less than expected.
The rise in the CPI was mainly due to a 2.6% increase in energy prices, driven by a 4.4% surge in gasoline. Food prices also saw a 0.3% increase for the month. Food prices rose by 2.5% annually in 2024, while energy decreased by 0.5%.
Shelter prices, accounting for about one-third of the CPI weight, increased by 0.3% and were up 4.6% from a year ago, the smallest gain since January 2022. Service prices excluding rents rose by 4% annually, the slowest increase since February 2024.
Stock market futures rose, and Treasury yields fell following the release of the data. Despite the favorable comparison to forecasts, the Federal Reserve still has work to do to reach its 2% inflation target. Headline inflation decreased from 3.3% in 2023, while core inflation was 3.9% a year ago.
The inflation data is expected to keep the Fed on hold during its upcoming policy meeting. While the market reacted positively to the CPI release, workers experienced a decline in inflation-adjusted hourly earnings for the month, with a year-over-year gain of just 1%.
Details in the inflation report showed mixed results, with used car and truck prices rising by 1.2%, new vehicle prices increasing by 0.5%, and transportation services surging by 0.5%. Egg prices jumped by 3.2%, leading to an annual gain of 36.8%. Auto insurance rose by 0.4% and increased by 11.3% annually.
The report indicates that while progress in reducing price pressures has slowed, there are signs that long-term inflationary pressures may continue to ease. Concerns over inflation and the Fed’s response have made markets uneasy, with tariffs and potential mass deportations adding to worries.
Job growth in December exceeded expectations, raising concerns that the Fed might delay rate increases if inflation remains persistent. The December CPI report, along with soft wholesale price readings, suggests that while inflation is not cooling significantly, it is not showing signs of reacceleration either.
A separate report from the New York Fed indicated a softening in manufacturing activity but substantial increases in prices paid and received. Futures pricing suggests a high likelihood that the Fed will maintain its current stance at the upcoming meeting, with a nearly 50-50 chance of two rate cuts throughout the year.
The Fed primarily uses the Commerce Department’s personal consumption expenditures price index for inflation forecasting, incorporating CPI and PPI measures into its calculations. The core PCE is expected to rise by 0.2% in December, maintaining the annual rate at 2.8%.
