Consumer Prices Rose More Than Expected in December

January 11, 2024

The prices that consumers pay for goods and services increased more than expected in December, according to the Labor Department, showing that despite progress to combat it, inflation is still holding a grip on the U.S. economy.

The consumer price index (CPI) climbed 0.3% last month and on a year-over-year basis was up 3.4%. Economists surveyed by Dow Jones had been anticipating a slightly more subdued monthly increase of 0.2% and an annual gain of 3.2%.

By comparison, the annual CPI gain in December 2022 was 6.4%. While inflation has moderated substantially over the year, December’s numbers mark an acceleration from November. That is largely due to November’s falling gas prices, which brought inflation lower. Gas prices stayed largely neutral in December, increasing just 0.2%.

The so-called “core” CPI, which excludes volatile components like food and energy, also rose 0.3% for the month and was up 3.9% on an annual basis. That is a slowdown from the previous month’s 4% annual increase. December’s core CPI figures were also slightly above economist expectations, but the month marks the lowest year-over-year core CPI reading since May 2021.

Much of the month’s gains came from rising shelter costs. The component climbed 0.5% for the month, accounting for more than half of the month’s increase. On an annual basis, shelter costs were up 6.2% and accounted for roughly two-thirds of the rise in inflation. Shelter costs are expected to decline throughout the year as the lagged method of data collection used by the CPI catches up to leases that have been renewed at lower rents.

Despite the high-than-expected CPI readings, investors believe the Federal Reserve remains on track to begin cutting rates soon. The CME Group’s gauge of futures pricing points to a 69% probability that the Fed will start cutting rates in March, slightly higher than before the CPI figures were released.

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