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Key Takeaways
- Inflation was cooler than expected in December as prices for used cars fell, driving down the overall inflation rate.
- However, food prices rose at their fastest pace in more than three years.
- Tariffs hurt less than expected, with prices for goods other than food and energy staying flat for the first time since May.
A key measure of inflation rose less than expected in December, offering some relief to household budgets strained by years of steep cost-of-living increases.
The Consumer Price Index rose 2.7% in December, the Bureau of Labor Statistics said Tuesday. That was the same annual increase as in November and matched forecaster expectations according to a survey of economists by Dow Jones Newswires and The Wall Street Journal. However, the core reading, which excludes the volatile prices for food and gas, rose 2.6% over the year, coming in less the median forecast for 2.8%.
What This Means For The Economy
More tame inflation reports could clear the way for the Federal Reserve to lower interest rates to help the faltering job market.
Inflation is still running above the Federal Reserve’s goal of a 2% annual rate, but flat inflation is an improvement over 2025. The annual CPI reading climbed between April and September of last year, with economists largely attributing the price hikes to President Donald Trump’s tariff campaign.
“Americans have waited for a long time since the pandemic, and now they’re starting to get relief on prices,” David Russell, global head of market strategy at TradeStation, wrote in a commentary.
The details of the report had mixed news for household budgets despite the overall cooling inflation. A 1.1% monthly drop in used car prices and flat prices for new cars helped keep the overall inflation rate from rising. Filling up those cars costs less too, as gas prices fell 0.5%. Goods besides food and energy, the category of the CPI most influenced by tariffs, stayed flat, making for the lowest monthly inflation in that category since May.
Food prices on the other hand, rose 0.7% over the month, the highest increase since September 2022, and shelter prices rose 0.4%, the same as in August and reversing a deceleration in September.
