Inflation eased in December as core consumer prices rose at the slowest annual rate since March 2021 in the final month of the year.
The Consumer Price Index (CPI) released by the Bureau of Labor Statistics on Tuesday morning showed that on a “core” basis — which excludes the more volatile categories of food and energy — consumer prices rose 0.2% over the previous month and 2.6% over the previous year.
The 2.6% increase in “core” CPI matches the rise reported in November and equals the slowest pace of annual inflation since March 2021.
On a headline basis, consumer prices rose 0.3% over the prior month and 2.7% over the prior year. Economists were expecting to see a 0.3% monthly increase and a 2.7% rise over the prior year for both headline and core inflation in December, according to estimates from Bloomberg.
Inflation has remained stubbornly above the Federal Reserve’s 2% target for some time. It has drifted downward over the past year, however, and has been characterized by policymakers as a less acute risk to the economy than a dramatic softening of the labor market.
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“The downside surprise to core prices in December occurred despite some payback in certain items following their suspiciously weak price moves over October and November, suggesting that underlying inflation pressures have genuinely moderated in recent months,” Stephen Brown, an economist at Capital Economics, wrote in a note following the release.
Tuesday’s report comes just a few days after the December jobs report showed the unemployment rate retreated from a four-year high, largely firming up investor bets that the Federal Reserve will keep rates unchanged later this month.
Following the December CPI report, data from the CME Group showed markets putting 95% odds on the Fed keeping rates unchanged at the conclusion of its Jan. 27-28 meeting.
The details of Tuesday’s report showed inflation pressures on household food budgets remain notable, with the index for food rising 0.7% in December and outpacing overall price increases.
The BLS noted that 5 of the 6 major grocery store food groups — which includes grains, meat, dairy, fruits, drinks, and other food at home — saw prices rise on a monthly basis in December. Only the cost meat, which includes fish, eggs, and poultry, fell, declining 0.2% in December.
Helping push core consumer prices lower was a drop in the price of used cars and trucks, with that index falling 1.7% in December. Airline fares also fell 0.5%, with the overall transportation services category logging a 0.5% drop in prices last month.
