Consumer prices rose more quickly in December, the latest sign that the Federal Reserve’s fight against inflation may have stalled.
The Consumer Price Index rose 0.4 percent from November, and was up 2.9 percent from a year earlier, the Labor Department said on Wednesday. That represented a modest acceleration from November on both a monthly and an annual basis.
The “core” measure of inflation, which strips out volatile food and fuel prices to give a better sense of the underlying trend, was more encouraging: The index rose 3.2 percent from a year earlier after three straight months of 3.3 percent gains. Forecasters had not expected core inflation to slow.
Inflation has cooled substantially since the middle of 2022, when it hit a four-decade high of more than 9 percent. More recently, however, progress has slowed, or even stopped outright: By some measures, inflation hardly improved in 2024.
“When you step back and look at the overall state of inflation, we’re not really going anywhere,” said Sarah House, senior economist at Wells Fargo. “While there has been progress, the pace has been really disappointing.”
Even before Wednesday’s data, officials at the Fed had voiced increasing concern about the slow progress on inflation. At the same time, the continued strength of the labor market — including data released last week showing unexpectedly strong job growth in December — has made policymakers less worried that their efforts to rein in price increases were leading to layoffs or causing damage to the broader economy.
As a result, investors widely expect the central bank to hold interest rates steady at its meeting later this month. That would break a streak of three consecutive rate cuts, and some forecasters now say that policymakers may not lower rates at all this year.
“With a labor market that’s stabilizing, with inflation already above target and with risks further to the upside, I think it’s difficult to make a case to keep cutting,” said Aditya Bhave, an economist at Bank of America.
Most Fed officials have said they still expect inflation to cool gradually, and economists agree that there’s reason to be optimistic. Data released on Tuesday showed that wholesale prices rose more slowly in December.
But policymakers are facing a new source of uncertainty: President-elect Donald J. Trump. The incoming president has promised to impose steep tariffs on imports, restrict immigration and cut taxes — policies that economists warn could push up prices further, although it is unclear by how much. Some Fed officials have said they are already factoring those policies into their outlook for inflation.
With price increases proving stubborn and the labor market looking strong, policymakers are unlikely to cut rates again until they get a clearer picture of what policies the new administration is adopting and how they are affecting the economy, said James Egelhof, chief U.S. economist at BNP Paribas
“The Fed has the luxury of a little bit of time to wait for President Trump to take office and to see exactly what happens,” he said.
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