Consumer prices rose even more rapidly in December, the latest sign that the Federal Reserve's fight against inflation may be stalling.
The Consumer Price Index rose 0.4% from November and was up 2.9% from the same month last year, the Labor Department said Wednesday. This represents a slight acceleration from November on both a monthly and annual basis.
A “core” measure of inflation, which removes volatile food and fuel prices to better capture underlying trends, was more encouraging. The index rose 3.2% year-on-year after rising 3.3% for three consecutive months. Forecasters did not expect core inflation to slow.
The inflation rate has cooled significantly since mid-2022, when it hit a 40-year high of over 9%. But progress has slowed or stopped altogether in recent days, and by some measures there will be little improvement in inflation in 2024.
“When you step back and look at the overall inflation picture, it's not really going anywhere,” said Sarah House, senior economist at Wells Fargo. “While we made progress, the pace was really disappointing.”
Even before Wednesday's numbers were released, Fed officials were growing concerned about slow progress in inflation. At the same time, continued strength in the labor market, including data released last week showing unexpectedly strong job growth in December, means efforts to rein in price increases may lead to layoffs. Policymakers are less concerned that the move could damage the overall economy. .
As a result, investors widely expect the central bank to keep interest rates unchanged at its meeting later this month. That would end a run of three consecutive rate cuts, although some forecasters now say policymakers may not cut rates at all this year.
“The labor market is stable, inflation is already above target, and there are further upside risks, so it makes no sense to argue for continued rate cuts,” said Aditya Bhave, an economist at Bank of America. I think it will be difficult.”
Most Fed officials still say they expect inflation to cool gradually, and economists agree there is reason to be optimistic. Data released on Tuesday showed wholesale price growth slowed more in December.
But policymakers face a new source of uncertainty: President-elect Donald J. Trump. The president-elect has promised to impose hefty tariffs on imports, limit immigration and cut taxes, but economists warn that his policies could push prices higher, but by how much? It is unknown whether Some Fed officials said they were already factoring these measures into their inflation outlook.
James Egelhoff, BNP's chief U.S. economist, said that with rising prices robust and the labor market looking strong, it remains to be seen what policies the new administration will adopt and how they will affect the economy. He said policymakers were unlikely to cut rates again until they had more clarity. Paribas
“The Fed has a little bit of time to wait out President Trump's inauguration and see exactly what happens,” he said.
