The BLS report for December was eagerly awaited by the market as the first full report after a 43-day shutdown (inflation data was not collected in October, and in November it was only collected from the middle of the month onwards). There were concerns that due to these technical features, inflation data for October-November was underestimated, which could manifest itself in an acceleration of price growth in December. However, overall inflation data matched market expectations, while core inflation was even slightly lower. In monthly terms, the consumer price index (CPI) rose 0.3% m/m in December, which was in line with the consensus forecast (monthly data for October and November are not available, but the BLS estimated CPI growth from September to November at 0.2%). In annual terms, inflation remained at the November level (2.7% y/y), as expected. Less volatile core inflation (excluding energy and food prices) was 0.2% m/m (the same as the latest available estimate for September), below the consensus forecast (0.3% m/m). In annual terms, core inflation also remained at the November level (2.6% y/y), which is also the lowest since March 2021. The consensus forecast was for an increase to 2.7% y/y.
The main goods and services that saw price increases in December were food (0.7% m/m, the highest growth rate since October 2022), energy (0.3% m/m, with gasoline falling 0.5% m/m and piped natural gas rising 4.4% m/m), current housing costs (0.4% m/m), clothing (0.6% m/m), transportation services (0.5% m/m, including airfare 5.2% m/m), recreation and entertainment (1.2% m/m, the highest monthly growth since the series began in 1993), and medical services (0.4% m/m). Prices fell for used cars (-1.1% m/m), communication services (-1.9% m/m), and household goods and services (-0.5% m/m). Prices for new cars remained unchanged. According to the BLS, the housing price index rose 0.4% in December and was the largest factor in the overall monthly increase in prices for all goods and services. Overall, goods excluding food and energy showed zero price growth in December, while core services rose 0.3% m/m.
Overall, in 2025, the cost of food increased by 3.1%, new and used cars by 0.3% and 1.6%, respectively. Medical services rose by 3.5%, housing costs by 3.2%, and clothing and footwear by 0.6%. Core goods (excluding food and energy) rose by 1.4%, and core services by 3%.
Although low core inflation in December was largely due to volatile factors (car prices), Fitch Ratings economists view the stagnation in prices for basic goods as a positive factor, confirming the view that the impact of tariffs on consumer prices has been lower than previously expected. Indeed, the absence of aggressive acceleration in commodity inflation supports the conclusion that the effect of tariff increases on inflation is likely coming to an end. However, inflation remains above target due to relatively stable inflation in services (including housing rentals) and accelerating food price growth. This does not yet give the Fed clear grounds to continue lowering interest rates at its next meeting, given that, as a result of previous cuts, it has already come close to a neutral level.
Combined with last week's December labor market data (unemployment down to 4.4%, better than the consensus forecast of 4.5%, fewer jobs created than expected (50,000 new jobs, below the consensus forecast of 60,000, estimates for November and October were revised downward by a total of 76,000) and an acceleration in hourly wage growth), the inflation data does not fundamentally change expectations that the Fed will keep rates at the current level of 3.5-3.75% at its next meeting on January 28. The futures market now expects this with a probability of more than 97% and fully (with a probability of more than 50%) factors in expectations of the first rate cut no earlier than the June meeting. Relations between the Fed and the US administration have noticeably deteriorated in recent days following Fed Chairman Jerome Powell's statement that the Justice Department is preparing to bring criminal charges against him in connection with his statements to the Senate Banking Committee in June last year on the Fed's headquarters renovation project. Powell viewed this accusation as continued pressure from the US administration, calling into question the Fed's ability to continue setting rates based on data and economic conditions. Powell's position was supported by the heads of global central banks and former Fed leaders. Many observers believe that such an escalation could complicate the Fed's decision to cut interest rates before Powell's term ends in May this year.
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