December CPI Data: Inflation Moderates to 2.9%, Core Inflation Eases

CPI Data Reveals Slowing Core Inflation as Energy Prices Surge

The U.S. Consumer Price Index (CPI) for December 2024 reflected mixed inflationary trends, with core inflation easing while energy prices drove overall growth. According to the Bureau of Labor Statistics, the CPI rose 0.4% on a seasonally adjusted basis, compared to a 0.3% increase in November. This brought the annual inflation rate to 2.9%, aligning with expectations. Core inflation, excluding food and energy, rose 0.2%, marking a slowdown after consistent 0.3% increases over the prior months, with an annual rate of 3.2%.

Energy Prices Propel Monthly Inflation

Energy costs surged 2.6% in December, accounting for over 40% of the monthly increase in the CPI. Gasoline prices led the spike, climbing 4.4%, while natural gas rose 2.4% and electricity edged higher by 0.3%. Despite these monthly gains, the energy index posted a 0.5% decline over the past year, with gasoline prices falling 3.4% and fuel oil plunging 13.1%. Conversely, natural gas and electricity rose 4.9% and 2.8%, respectively, over the same period, reflecting persistent sectoral pressures.

Food Index Sees Moderate Growth

The food index increased by 0.3% in December, continuing its upward trend. Prices for food at home mirrored this rise, with cereals and bakery products up 1.2% and meats, poultry, fish, and eggs climbing 0.6%. Egg prices alone surged 3.2%. Over the past year, food prices rose 2.5%, led by meats, poultry, fish, and eggs at 4.2%. Limited-service meals outpaced other categories, posting a 3.7% year-over-year increase, underscoring sustained demand.

Core Inflation Trends Show Easing Pressures

Core inflation, excluding food and energy, rose 0.2% in December, its smallest gain in five months. Shelter costs climbed 0.3%, with rents and owners’ equivalent rent contributing to the increase. Airline fares jumped 3.9%, while used car prices rose 1.2%. Annually, shelter costs rose 4.6%, the smallest 12-month increase since January 2022. However, motor vehicle insurance spiked 11.3%, reflecting continued pricing strain in specific sectors.

Market Forecast: Energy Volatility Adds Uncertainty

The CPI data suggests inflationary pressures may be easing, with core inflation aligning closer to the Federal Reserve’s 2% target. However, energy’s renewed impact on prices introduces volatility, potentially complicating monetary policy decisions. A cautious market sentiment is expected, with a bullish outlook contingent on stable energy trends and further moderation in core inflation.