United States consumer prices recorded their largest monthly rise in nine months during December, fuelled by a sharp increase in energy costs, according to data released by the Labor Department on Wednesday (Thursday AEDT). Despite this, underlying inflation pressures continued to ease, suggesting the Federal Reserve may see less urgency for further rate adjustments.
The Consumer Price Index (CPI) rose by 0.4% in December, its largest gain since March, following a 0.3% increase in November. A 2.6% jump in energy costs, largely attributed to a 4.4% surge in gasoline prices, accounted for over 40% of the monthly rise.
ClearBridge Investments’ Head of Economic and Market Strategy, Jeff Schulze commented: “December’s CPI release in the U.S should help allay near term investor concerns about a reacceleration in prices as stronger economic data and a hot jobs report left many questioning whether progress would continue on the inflation front."
Food prices also climbed, increasing by 0.3%, with egg prices soaring 3.2% due to supply disruptions from an avian flu outbreak.
On a year-over-year basis, the CPI advanced by 2.9% in December, matching expectations and marking the highest annual rise since July. For 2024, consumer prices rose by 2.9%, a significant slowdown from the 4.1% increase in 2023.
Core inflation, which excludes volatile food and energy prices, showed a modest increase of 0.2% in December, breaking a four-month streak of 0.3% gains. This brought the annual core CPI increase to 3.2%, down slightly from November's 3.3%.
The latest inflation data has prompted speculation about the Federal Reserve's monetary policy trajectory. While the Fed has signalled a slower pace of rate cuts due to inflationary risks, financial markets have begun pricing in a potential rate reduction by mid-2025.
Housing costs, measured through owners' equivalent rent, rose 0.3% in December, following a 0.2% increase in November. Transportation costs also contributed to inflationary pressures, with airline fares surging 3.9%. In contrast, hotel and motel room prices declined by 1.0%. Healthcare costs edged up slightly by 0.1%.
Prices for used vehicles increased by 1.2%, while new motor vehicle and apparel costs also recorded gains. Conversely, prescription drug prices remained stable.
While December's inflation figures reflect a resilient economy, challenges such as potential tariffs and immigration policies could complicate the Fed's goal of achieving its 2% inflation target. Nonetheless, the deceleration in core inflation offers some optimism for 2025.