US Inflation Rises to 2.9% in December, as Gas and Egg Prices Drive Uptick
U.S. inflation showed signs of picking up in December, driven by the higher cost of gas, eggs and used cars, but underlying price pressures appeared to ease slightly, offering some relief for consumers.
The consumer price index (CPI) rose 2.9 percent year-over-year in December, the largest annual increase since July. When stripping out the more volatile food and energy sectors, core inflation slowed to 3.2 percent, from 3.3 percent.
The latest data from the Labor Department, released on Wednesday, marked a slight uptick from November’s 2.7 percent. It was the third-consecutive rise following a 3.5-year low of 2.4 percent in September.
Why It Matters
Investors and economists have been grappling with concerns that inflation has become entrenched above the Federal Reserve’s 2 percent target.
Consumers have been struggling with rising prices and high mortgage payments during the cost of living crisis in the past few years. Signs that prices are stubbornly holding above 2 percent will make it harder for the central bank to cut interest rates in the coming months.
The Federal Reserve building on June 19, 2015, in Washington. U.S. inflation picked up in December as prices rose for gas, eggs and used cars.
Andrew Harnik/AP, file
What Is Causing U.S. Inflation to Creep Up?
Despite signs of moderation, broader concerns about higher prices remain, particularly with the prospect of potentially inflationary policies from the incoming Trump administration.
As part of his campaign, President-elect Donald Trump suggested imposing tariffs on a wide range of goods, including up to 20 percent duties on all imports and up to 60 percent on products from China.
This threat has already influenced markets, with Treasury yields and borrowing costs climbing in anticipation of these measures.
But at the American Economic Association’s annual meeting earlier this month, several economists, including former Federal Reserve Chair Ben Bernanke, agreed that the tariffs proposed by Trump would likely have a limited effect on overall inflation.
U.S. Federal Reserve Chair Jerome Powell in Washington, D.C., on June 12, 2024. Inflation remains a major concern.
Graeme Sloan/Sipa via AP Images
What to Know
Gas prices surged 4.4 percent in December, while egg prices jumped 3.2 percent, continuing to feel the ripple effects of an ongoing avian flu outbreak that has decimated chicken flocks.
The national average price of gas stood at $3.09 per gallon on Wednesday, reflecting a modest 7 cent rise from November, but only a 2 cent increase compared to a year ago.
On a month-to-month basis, CPI climbed 0.4 percent in December, marking the biggest increase since March. Meanwhile, core prices increased by 0.2 percent, a welcome slowdown after four months of 0.3 percent monthly rises.
Minutes from the Federal Reserve’s December meeting showed that central bank economists expect inflation to hold steady in 2025, with some potential upward pressure from tariffs.
How Will Donald Trump’s Tariffs Impact Inflation?
The Fed has indicated it will keep its key interest rate elevated until inflation returns to 2 percent, which has led Wall Street to forecast just a single rate cut in 2025, down from the current 4.3 percent.
High borrowing costs persist for consumers, with mortgage rates rising to 6.9 percent, according to the Associated Press, continuing their upward trajectory from the pandemic-era lows of below 3 percent.
These costs, combined with persistent inflation concerns, are putting a strain on consumers, despite the continued strength of the job market. The unemployment rate dipped to a low 4.1 percent last month.
What People Are Saying
Jason Furman, a former economic adviser during the Obama administration, argued that Trump’s duties would likely raise inflation by only a few 10ths of a percentage point. However, he added that even small shifts like this could influence the Fed’s rate decisions, which are closely tied to inflation metrics.
He said: “We are in a world where the Trump policies are more about 10ths of a percentage point than something cataclysmic. But those 10ths can determine whether rates are staying the same, going down, or going up.”
What Happens Now
As the U.S. navigates these complex inflationary dynamics, the path forward remains uncertain, with the Federal Reserve likely to remain vigilant in its efforts to balance controlling inflation with encouraging economic growth.
This article contains additional reporting from the Associated Press.