Prices consumers pay for a variety of goods and services rose again in December, but ended 2024 with some good news on inflation, particularly housing.
The Consumer Price Index rose a seasonally adjusted 0.4% from the same month, bringing the 12-month inflation rate to 2.9%, the Bureau of Labor Statistics said Wednesday. Economists surveyed by Dow Jones had called for readings of 0.3% and 2.9%, respectively.
However, the annualized core CPI excluding food and energy was 3.2%, down one notch from last month and slightly above the expected 3.3%. The core index rose 0.2% from the previous month, but this was also 0.1 percentage points lower than expected.
The CPI increase was mainly due to a 2.6% rise in energy prices during the month, boosted by a 4.4% rise in gasoline prices. This accounted for about 40% of the index’s increase, according to the BLS. Food prices also rose, rising 0.3% for the month.
On an annual basis, food increased by 2.5% in 2024, while energy decreased by 0.5%.
Shelter prices, which account for about one-third of the CPI, rose by 0.3%, but compared to the previous year, they rose by 4.6%, the smallest one-year increase since January 2022.
Stock market futures soared on the announcement, while U.S. Treasury yields fell.
While this number is better than expected, it still shows that the Federal Reserve still has work to do to reach its 2% inflation target. Headline inflation has fallen from 3.3% in 2023, while core inflation was 3.9% a year ago.
Ellen Zentner, the Federal Reserve’s chief economic strategist, said, “Today’s CPI may make the Fed a little more dovish.While our forecast for a pause in the second half of this month remains unchanged, there is some talk that the Fed may raise interest rates.” It will be suppressed,” he said. Morgan Stanley Wealth Management. “And judging by the market’s initial reaction, investors appear to be feeling a sense of relief after months of solid inflation.”
Inflation this week (BLS releases agricultural price index on Tuesday) is expected to put policy on hold when the Fed holds its policy meeting later this month.
While markets welcomed the CPI announcement, the news was not very positive for workers. In a separate release, the BLS said inflation-adjusted hourly wages fell 0.2% for the month, representing a year-over-year increase of just 1%.
Other details in the inflation report were mixed.
Prices of used cars and trucks rose 1.2%, and prices of new cars rose 0.5%. Transport services rose by 0.5%, up 7.3% year-on-year, while egg prices rose by 3.2%, for an annual increase of 36.8%. Auto insurance rose by 0.4%, an annual increase of 11.3%.
“Inflation is currently facing a ‘last mile’ problem where progress in easing price pressures is slowing,” said Soong Won Soong, a professor at Loyola Marymount University and chief economist at SS Economics. “Key drivers of inflation such as gasoline, food, automobiles and housing remain persistent challenges. However, long-term inflationary pressures may continue to ease, helped by moderating trends in key sectors such as housing and labor. There are also signs of hope that sex will be costly. ”
The report comes as markets become nervous about the inflation situation and the Fed’s potential response. President-elect Donald Trump’s promised tariffs and mass deportations have heightened concerns about inflation.
Job growth in December was much faster than economists expected, adding 256,000 jobs, leaving the Fed on hold to keep long-term interest rates on hold and considering raising rates if inflation turns out to be stronger than expected. There is even more concern that this may even occur.
The December CPI report, combined with Tuesday’s relatively soft wholesale price figures, shows that while inflation has not cooled dramatically, it is also showing no signs of reaccelerating.
A separate report released Wednesday by the New York Fed showed that while manufacturing activity has slowed, prices paid and received have increased significantly.
Futures pricing continues to suggest the Fed is almost certain to remain on hold at its Jan. 28-29 meeting, but assumes quarterly percentage point increments, according to CME Group data. In this case, the title is more favorable as it prepares for two annual rate cuts. Markets are predicting that the next rate cut will likely take place in May or June.
The Fed uses the Commerce Department’s Personal Consumption Expenditures Price Index as its main predictor of inflation. However, CPI and PPI measurements are factored into that calculation.
These two measures mean core PCE rose just 0.2% in December and is likely to remain at an annual rate of 2.8%, according to Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. It is said that there is
