U.S. Inflation Edges Higher in December, Keeping Fed Cautious/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ U.S. inflation ticked up to 2.6% in December, marking the third consecutive monthly increase, according to the Commerce Department. Core inflation, which excludes food and energy, remained steady at 2.8%, signaling persistent price pressures. The report comes as the Federal Reserve holds off on interest rate cuts, waiting for inflation to cool further. Despite the uptick, short-term inflation trends suggest gradual progress, with core prices rising just 2.2% over the past three months. Meanwhile, consumer spending jumped 0.7% in December, driven by steady wage growth and strong stock and housing markets, though the national savings rate dipped to 3.8%.
U.S. Inflation Trends: Quick Look
- Inflation rose to 2.6% in December, up from 2.4% in November.
- Core inflation held steady at 2.8%, indicating persistent price pressures.
- Gas prices contributed to a 0.3% monthly increase in inflation.
- Consumer spending surged 0.7%, fueled by wage growth and higher asset values.
- The Federal Reserve kept rates steady, citing a need for further inflation progress.
- Powell signaled no immediate rate cuts, as inflation remains above the 2% target.
U.S. Inflation Edges Higher in December, Keeping Fed Cautious
U.S. Inflation in December: A Deep Look
Inflation Picks Up, but Cooling Signs Remain
The Commerce Department’s latest report showed that consumer prices rose 2.6% in December, marking the third consecutive month of rising inflation. This slight uptick follows 2.4% inflation in November, raising concerns that price pressures are not easing as quickly as expected.
However, there were some encouraging signs:
- Core inflation, which excludes volatile food and energy prices, remained at 2.8%, indicating no acceleration in underlying costs.
- Over the past three months, core prices have risen at an annualized rate of just 2.2%, down from 2.6% in November—a sign that inflationary pressures may be gradually easing.
- Short-term monthly inflation rose by just 0.2%, a pace that aligns closely with the Fed’s 2% annual target.
Gas Prices and Consumer Spending Impact Inflation
Meanwhile, consumer spending grew by 0.7% in December, reflecting:
- Steady wage growth and income gains (up 0.4% in December).
- Higher stock market and home values, making consumers feel wealthier and spend more.
- A decline in the savings rate to 3.8%, as spending outpaced income growth.
Federal Reserve Holds Rates Steady Amid Inflation Concerns
On Wednesday, the Fed announced it would pause further rate cuts, keeping its key interest rate at 4.3%. Powell acknowledged recent progress in lowering inflation but stressed the need for more consistent declines before the Fed considers easing rates.
“We seem to be set up for further progress,” Powell said, but added: “We need to see more evidence before taking action.”
Economic Growth Remains Strong Despite Inflation Concerns
Despite persistent inflation, the U.S. economy continues to expand:
- GDP grew at a solid 2.3% annual rate in Q4 2024, although slightly down from 3.1% in Q3.
- The slowdown was largely due to a temporary reduction in business inventories, which economists expect to rebound in coming quarters.
- Underlying economic trends, such as cooling rent prices and slower wage growth, suggest inflation may ease further in 2025.
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