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U.S. Inflation Accelerates in December, Reaching Highest Pace in Nearly a Year
Inflation in the United States accelerated in December to its fastest pace in nearly a year, according to Commerce Department data released Friday, highlighting how price increases continue to outpace the Federal Reserve’s 2% annual target and strain household budgets across the country.
Consumer prices rose 0.4% in December from November, up from the previous month’s 0.2% increase. This marks the highest monthly jump since February last year. Year-over-year inflation reached 2.9% in December, slightly higher than November’s 2.8% rate and the largest annual increase since March 2024.
Core inflation, which excludes volatile food and energy categories and is closely watched by economic policymakers, also climbed 0.4% month-over-month in December, doubling November’s 0.2% increase. The annual core inflation rate jumped to 3% in December, accelerating from 2.8% the previous month.
The report, which was delayed by the six-week government shutdown last fall, measures the personal consumption expenditures (PCE) price index—the Federal Reserve’s preferred inflation gauge over the better-known Consumer Price Index (CPI). While the CPI showed notable cooling in January, the PCE index typically runs higher because it places less weight on categories where price growth has significantly slowed, such as apartment rents and automobile prices.
Several essential household categories saw significant price increases in December. Furniture, clothing, and groceries all became more expensive. While gasoline prices provided some relief by declining, the cost of electricity rose, and natural gas prices surged 3.7% in just one month.
Despite persistent inflation, American consumers maintained their spending habits through the holiday season. Consumer spending increased 0.4% in December, matching November’s pace and demonstrating resilience in the face of elevated prices.
The inflation data highlights a critical economic challenge that continues to frustrate many Americans, even as other economic indicators remain relatively healthy. While unemployment stays low and economic growth remains solid, the persistent higher-than-target inflation has contributed to widespread dissatisfaction with the economy.
“Many households are still feeling the cumulative impact of several years of above-average price increases,” said Robert Wilson, chief economist at Capital Markets Research. “Even though inflation has fallen substantially from its peak of nearly 7% in 2022, prices aren’t coming back down—they’re just rising more slowly now.”
This economic disconnect helps explain why consumer sentiment surveys often show negative views despite what many economists consider relatively strong economic fundamentals.
The Federal Reserve’s interest rate-setting committee, which met in late January, opted to keep its short-term rate unchanged at approximately 3.6%, resisting pressure from President Donald Trump for rate reductions. According to minutes from the meeting released Wednesday, most Fed officials want to see inflation move closer to their 2% target before supporting further rate cuts.
Market analysts suggest the December inflation data will likely reinforce the Fed’s cautious approach to monetary policy in the coming months.
“This report gives the Fed plenty of reason to maintain its patient stance,” said Jennifer Ramirez, senior economist at Global Financial Partners. “With inflation still running nearly a full percentage point above target and showing recent acceleration, policymakers will likely need to see several months of consistent improvement before considering significant policy adjustments.”
For American consumers, the persistence of above-target inflation continues to create financial challenges, particularly for lower and middle-income households whose wage gains may not fully offset rising prices for everyday necessities.
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10 Comments
The jump in core inflation is a concerning sign that underlying price pressures are building. I’ll be monitoring how this evolves and what it means for the Fed’s future rate hike decisions.
Good point. The core inflation metric tends to provide a clearer signal of the underlying inflation trends, so the acceleration there is something the Fed will likely have to address.
While inflation has been a persistent issue, the December data shows it accelerating at a faster rate than expected. This could put added pressure on the Fed to be more aggressive in its monetary policy actions.
These inflation numbers underscore the challenges facing policymakers as they try to balance price stability with supporting economic growth. It will be interesting to see how the administration and the Fed respond.
Inflation has been a tricky issue for policymakers to navigate. These elevated price pressures could pose challenges for households trying to manage their budgets amidst rising costs.
Interesting to see inflation continuing to outpace the Fed’s target. I wonder what factors are driving these price increases and how that might impact consumer spending and the broader economy going forward.
While the annual inflation figure is still within the Fed’s target range, the monthly increases are starting to add up. I hope the central bank can find the right balance to tame inflation without derailing economic growth.
Agreed, the Fed will need to carefully weigh its policy options to address inflation without causing undue harm to the broader economy.
The acceleration in core inflation is particularly noteworthy. I’ll be curious to see how the Fed responds to these latest inflation numbers as they chart the path of monetary policy.
The combination of higher inflation and rising interest rates is creating a complex environment for businesses and consumers. I’m curious to see how this all plays out in the coming months.