Topline
Inflation in December was its highest since the summer, according to data released Wednesday morning, a sign of the lingering presence of higher prices for consumers, though economists did predict an inflation bump was due.
Inflation is still not back to the pre-pandemic norm.
Key Facts
Headline inflation was 2.9% in December, according to year-over-year changes in the Bureau of Labor Statistics’ consumer price index, the most commonly cited measure of inflation, while the index rose 0.4% from November to December on a seasonally adjusted basis.
Consensus economist forecasts called for 2.9% annual inflation and 0.3% month-over-month inflation, according to Dow Jones data.
That’s the highest annual inflation reading since July’s 2.9%.
Core inflation, which excludes the more erratic food and energy categories, was 3.2% last month, actually better than estimates of 3.3%, where it stood from September to November, though it’s still well above the 2% long-term target held by the Federal Reserve.
The more encouraging core inflation reading was largely because last month’s higher prices were mostly concentrated in energy, as the index’s measure of average gasoline prices rose 4.4% month-over-month .
Why Are Gas Prices Going Up?
The December jump in gas prices may come as a surprise to drivers who have enjoyed a relatively stable decline in prices at the pump from their 2022 record level following Russia’s invasion of Ukraine. But much of the consumer price index release has to do with the Bureau of Labor Statistics’ seasonal adjustment for gas prices, which nominally declined 1.1% from November to December but increased 4.4% according to CPI, which adjusts for December typically being one of the cheapest months to buy gas. The weaker-than-normal gas price declines last month came as crude oil prices increased, with U.S. benchmark West Texas Intermediate climbing 5% in December as traders prepared for potential sanctions on Iranian oil from President-elect Donald Trump. The CPI gas metric was 3.4% lower last month than it was in Dec. 2023.
Key Background
The higher inflation reading was at least in part a reflection of price increases tied to the turn of the calendar year, Goldman Sachs economists Jessica Rindels and Ronnie Walker wrote in a Monday note previewing the release. Prices roared beginning in 2021 as the economy recovered from COVID-19 lockdown orders, eventually reaching a 41-year high of over 9% in 2022 before slowly decreasing over the last 2.5 years. Inflation has been arguably the most important subject surrounding the U.S. economy for four years, not only impacting consumers’ wallets but also policy, as the Fed hiked interest rates to their highest level since the mid-2000s, making borrowing from mortgages to corporate loans more expensive. November marked the first time since March that annual inflation increased, indicating stalling progress in bringing prices down, headway that Fed staff have said could further be affected by the inflationary universal tariffs supported by President-elect Donald Trump.
What To Watch For
Goldman economists forecast an annual core CPI inflation rate of 2.7% by the end of 2025. That’d be the lowest rate since March 2021 but higher than it ever was from February 2007 to March 2021, indicative of sustained higher prices in the U.S.. “Progress on inflation should stall this year given our expected changes to trade, fiscal and immigration policy,” Bank of America economists Stephen Juneau and Jeseo Park wrote in a Monday note to clients.
Big Number
21.3%. That’s how much the consumer price index rose from December 2020 to December 2024, coinciding with President Joe Biden’s term. The 5.3% annualized inflation was perhaps the biggest ding on Biden’s economic performance, clouding the positive effects of high job growth and strong stock market returns.
Further Reading
