US Inflation Rises in December, Led by Higher Energy Costs

The inflation number has eluded the Federal Reserve’s 2 percent inflation target, which would help it sustain the interest rate cuts that it implemented for three consecutive sessions until December. Federal Reserve chair Jerome Powell had said after a meeting of the Federal Open Market Committee (FOMC) last month that elusive inflation target was forcing the Fed Reserve to reduce the number of proposed rate cuts in 2025 to two from originally intended four. 

December’s inflation was notably influenced by the energy sector, which soared by 2.6 percent, with gasoline prices increasing by 4.4 percent. This sector accounted for over forty percent of the overall monthly rise in the CPI. Food prices also saw a modest rise of 0.3 percent, consistent across both home and away from home categories. In contrast, the index for all items less food and energy rose by a more subdued 0.2 percent, reflecting slower growth in areas excluding volatile food and energy prices.

Impact of Energy Prices on Overall Inflation

Energy prices recorded a robust increase in December, largely contributing to the month's inflation figures. The gasoline index, up by 4.4 percent, and natural gas, up by 2.4 percent, were significant contributors. Despite these monthly gains, the annual overview shows a mixed performance in the energy sector, with the overall energy index down by 0.5 percent due to previous declines in fuel oil and gasoline prices.

Steady Growth in Food Indexes

The food index's consistent rise in December underscores ongoing upward trends in food costs. Key segments like cereals and bakery products, and meats, poultry, fish, and eggs posted notable increases. The index for food away from home continued its upward trajectory, reflecting persistent inflationary pressures in the dining sector.

Subdued Growth in Core CPI Components

Excluding food and energy, core CPI components such as shelter and medical care saw modest increases. The shelter index, a significant part of the core CPI, rose by 0.3 percent. Meanwhile, indexes for airline fares and new vehicles also advanced, indicating broader inflationary pressures beyond energy and food.

Annual Overview and Future Implications

The CPI-U rose to an index level of 315.605, a 2.9 percent increase over the last year, reflecting sustained price pressures across various sectors. This data provides a crucial benchmark for policymakers and economists as they assess the inflationary landscape and its implications for monetary policy and consumer spending.

Source: Bureau of Labor Statistics Press Release