A customer browses eggs on a half-empty shelf at a grocery store in Lawndale, California, on January 2, 2025.
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The U.S. Bureau of Labor Statistics reported Wednesday that inflation rose in December as energy and food prices rose.
of the bureau consumer price indexThe inflation gauge rose 2.9% this month compared with the same period last year.
This is higher than the annual inflation rate of 2.7% in November and higher than recent low It was 2.4% in September.
While the upward trend may seem discouraging, there is evidence that suggestion Economists say inflation should resume its downward trend in 2025.
But they warned that President-elect Donald Trump’s incoming administration may hinder or reverse this progress If it pursues policies such as tariffs and tax cuts, depending on their scope, that could lead to inflation.
“The key wildcard here is policy,” Joe Seidel, senior market economist at J.P. Morgan Private Bank, said of the trajectory of inflation.
The Consumer Price Index (CPI) measures how quickly prices rise or fall for a basket of goods and services, from haircuts to coffee, clothing and concert tickets.
CPI inflation has fallen sharply from its pandemic high of 9.1% in June 2022. The central bank’s long-term target is an annual interest rate of 2%.
The Fed also uses another inflation measurepersonal consumption expenditures price index. Seydl said CPI readings tend to rise by about 0.2 to 0.3 percentage points.
“We’re not that far apart,” Seidel said. “By the end of the year, we expect year-over-year growth rates to return to these targets.”
Eggs are a ‘wobble factor’
There are some trouble spots in December.
For example, grocery prices rose 0.3% from November to December, according to CPI data. Economists said the monthly increase of about 0.2% was in line with the Fed’s target.
Eggs are a “swing factor” in the growth, Seidel said.
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He said the bird flu outbreak in the United States had a “significant impact” on egg prices. The virus is highly contagious in birds and has killed millions of laying hens. Reduce egg supply.
Egg prices rose 3.2% from November to December, the largest increase among all groceries, according to the CPI. Since December 2023, this number has increased by 37%.
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Gasoline inflation also jumped: Gasoline prices rose 4.4% from November to December, according to CPI data.
In the real world, though, consumers may not be seeing this: The average price at the pump actually fell about two cents last month, from Dec. 2, according to weekly data from the U.S. Energy Information Administration. The price dropped from $3.03 per gallon to $3.01 per gallon on December 30. data.
Federal statisticians adjust inflation data based on seasonal patterns; Seydl said gasoline prices fell less than normal in December and CPI fell less than normal because of rising inflation.
Gasoline prices fell more than 3% last year, according to the CPI. Groceries rose 1.8%.
Housing inflation continues to fall
At the same time, there were some bright spots in the CPI report, such as housing.
4.6% annual inflation rate Home prices in December were the lowest since January 2022.
Economists prefer to focus on a measure known as the “core” consumer price index, which strips out more volatile food and energy prices, to provide a more accurate reading of underlying inflation dynamics.
There, the picture is better: core consumer price index Since August, the monthly growth rate has been stuck at 0.3%, and the monthly growth rate fell to 0.2% in December. Annual core inflation fell to 3.2% from 3.3%.
“It’s encouraging that inflation continues to ease back slowly but steadily,” said Mark Zandi, chief economist at Moody’s.
“The only difference between where we are and the Fed’s goal is the growth in housing costs,” he said. “It’s slowing down significantly now.”
Zandi estimated that, barring any slowdown in Trump administration policies, inflation could return to target levels by the spring or summer.
Although the labor market remains strong, wage growth continued to cool in December: average hourly earnings The annual rate of growth last month was 3.9%, down from 4% in November, according to a separate report released Friday by the Bureau of Labor Statistics.
This is important because labor is a major input cost for businesses, especially those in service industries such as leisure and hotels. If wage growth surges, companies may raise prices.
Trump’s tariff threat may affect consumer purchases
Elsewhere, air ticket prices rose 3.9% between November and December, after rising 0.4% the previous month. Used car and truck prices rose 1.2% this month, while new car prices rose 0.5%.
Thomas Ryan, North America economist at Capital Economics, wrote in a note Wednesday that the growth in new and used vehicles “suggests a continued surge in demand for replacement vehicles in the wake of October’s hurricanes and the California wildfires.” This demand will be rekindled.”
Car insurance prices rose 0.4% this month and are up 11% since December 2023.
Economists say this is largely due to the delayed effect of higher auto inflation early in the pandemic. Car prices are built into motor vehicle insurance: When prices rise, it also costs insurance companies much more to replace a vehicle after a crash.
Seidel said part of the reason for recent increases in auto prices may be that consumers are buying faster, boosting demand to avoid potential tariffs imposed by the Trump administration.
Stephen Brown, deputy chief North America economist at Capital Economics, wrote on Friday that data from the University of Michigan’s most recent consumer confidence survey “show that consumers are increasingly worried that Trump’s policy plans may cause The impact of stagflation.”
“Expectations of impending tariffs mean consumers are deciding now is a better time to buy durable goods,” he wrote.
