Consumer prices likely stayed elevated in December as data recovers from shutdown

Inflation Persists Above Fed Target as December Data Expected to Show Continued Price Pressures

Consumer prices likely remained elevated last month, adding further strain to household budgets despite the Federal Reserve’s efforts to bring inflation down to its target rate, according to economists’ projections ahead of the Labor Department’s upcoming report.

Analysts expect December’s inflation figures to show prices rose 2.6% compared to a year earlier, a slight decrease from November’s 2.7% rate. However, monthly prices are projected to increase by 0.3%, a pace that exceeds the Federal Reserve’s annual 2% inflation target when annualized.

The December inflation data carries unusual uncertainty due to disruptions in the government’s price collection process. The six-week government shutdown last fall suspended the gathering of critical pricing information, potentially affecting the accuracy of recent inflation readings. Some economists anticipate the December figures may show a larger jump as data collection normalizes.

Core inflation, which excludes volatile food and energy categories and is considered a better indicator of underlying price pressures, is expected to rise 0.3% from November and reach 2.7% year-over-year, up from 2.6% the previous month.

The November inflation reading of 2.7% represented a decrease from September’s 3%, but economists note this decline may have been influenced by technical factors. The government never calculated an inflation figure for October due to the shutdown. Additionally, most November prices were collected after the government reopened, coinciding with holiday discounts that may have artificially suppressed the inflation reading. Incomplete rental price collection in October also required placeholder estimates that could have skewed figures downward.

While inflation has retreated significantly from its June 2022 peak of 9.1%, it has stubbornly hovered near 3% since late 2023. Essential items like groceries now cost approximately 25% more than before the pandemic, while other necessities including rent and clothing have similarly surged. This persistent inflation continues to fuel public dissatisfaction with the economy, a sentiment both President Donald Trump and former President Joe Biden have attempted to address with limited success.

The Federal Reserve finds itself in a challenging position as it tries to balance its inflation-fighting mandate with supporting employment. With inflation persistently above its 2% target, the central bank remains cautious about significant interest rate reductions despite implementing a quarter-point cut in December.

Fed Chair Jerome Powell indicated during his December press conference that the central bank would likely pause further rate cuts to monitor economic developments. The Fed’s interest rate-setting committee remains deeply divided between members who favor additional cuts and those who prefer maintaining the current rate of approximately 3.6% to combat inflation.

President Trump has sharply criticized the Fed for not cutting rates more aggressively, arguing such moves would reduce mortgage rates and government borrowing costs. However, the Fed does not directly control mortgage rates, which are determined by financial markets.

Complicating the Fed’s future inflation-fighting efforts, the Department of Justice recently served the central bank with subpoenas regarding Powell’s congressional testimony from June about a $2.5 billion renovation of two Fed office buildings. Trump administration officials have suggested Powell may have misrepresented building plans or made unauthorized modifications.

Powell responded forcefully on Sunday, characterizing these claims as “pretexts” for White House attempts to exert greater control over the Fed. “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,” Powell stated. “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation.”

As the inflation report approaches, market participants will closely analyze the data for indications of whether price pressures are genuinely easing, which would support the case for additional Fed rate cuts later this year.