Inflation continued its upward trajectory in December, climbing to 2.9% on an annual basis, marking the third consecutive monthly increase.
The latest Consumer Price Index (CPI) data, released by the Labor Department, has heightened concerns about the Federal Reserve’s next moves and its implications for an economy already strained by high costs of living.
The December CPI reading represents a two-tenths percentage point rise from November’s 2.7%.
On a monthly basis, prices increased by 0.4%, maintaining the same pace as the previous month. Core inflation, which excludes volatile food and energy costs, moderated slightly to 3.2% annually, down from 3.3% in November, offering some relief.
However, the broader inflation picture remains a thorn in the side of consumers, particularly lower-income families who feel the brunt of rising costs for essentials like food, rent, and energy.
Energy prices alone accounted for over 40% of December’s CPI increase, with gasoline prices jumping 4.4% for the month.
Food prices saw a similar uptick, climbing 0.3%, while housing costs rose 0.3%, reflecting the ongoing strain on household budgets.
These numbers come as the Federal Reserve weighs its options for interest rate policy.
Fed Chair Jerome Powell has signaled a possible pause in rate adjustments following recent cuts that brought the federal funds rate to a range of 4.25% to 4.5%.
Despite inflation remaining above the Fed’s 2% target, markets largely expect rates to hold steady at the upcoming meeting.
Economists remain divided on whether inflation has reached a turning point.
Gregory Daco, chief economist at EY, noted, “Despite all the noise, inflation is no longer a concern. What is a concern is elevated prices deterring consumer spending for many lower- to median-income families.”
For Trump, who is poised to take the reins of an economy shaped by his predecessor’s policies, the task ahead is formidable.
Since President Joe Biden took office in January 2021, the CPI has risen a staggering 21%, a figure that underscores the scale of inflation’s impact.
Trump has historically had a contentious relationship with the Federal Reserve, frequently criticizing its monetary policy during his first term.
Although he famously clashed with Powell in the past, Trump recently stated that he has no plans to replace the Fed Chair.
Still, the interplay between Trump and the central bank could significantly influence how the inflation story unfolds in 2025 and beyond.
Adding to the complexities, recent jobs data showed the economy adding 256,000 jobs in December, with the unemployment rate ticking down to 4.1%.
While a robust labor market gives the Fed some room to maneuver, it also complicates efforts to balance economic growth with inflation control.
The December CPI data highlights both progress and persistent challenges in taming inflation.