Last updated on January 16, 2025
Prices rose by 2.9 percent annually last month, up from November, but hopeful signs also appeared in inflation data.
By Brandian Robinson | Jan 15, 2025 at 10:06 a.m. ET Updated | Economics
Inflation picked up in late 2024, fueled by a large rise in gas prices, the latest sign of stalled improvement on lowering consumer prices.
The Consumer Price Index increased by 2.9 percent in December from a year earlier, the Labor Department reported on Wednesday, in line with economists’ expectations and hotter than a 2.7 percent rise in November. It was also above a 2.6 percent annual increase in October.
On a monthly basis, prices rose 0.4 percent from November, the largest increase since March.
Stripping out volatile food and energy categories, inflation grew by 3.2 percent for the year ending in December — slightly better than a 3.3 percent rise reported in November.
Still, the fresh data underscore the economic concerns of Americans, who voted out incumbents in federal elections last year even as inflation eased for much of the year.
Hotter inflation combined with the strong labor-market data for December could give the Federal Reserve more reason to pause interest rate hikes when policymakers meet later this month.
Overall, prices remain much higher than in 2019, before the pandemic, amid a surge of consumer spending driving up the costs of health care, transportation and other categories of consumer services.
“Service sector inflation has proven quite stubborn due to robust consumer demand driven by a strong jobs market and wage gains above inflation,” said Joe Brusuelas, chief economist at RSM.
Another big factor that has kept monthly prices from falling is housing. Housing prices have shown limited signs of easing, amid a national shortage of new housing and mortgage rates that continue to climb despite three consecutive rate cuts from the Federal Reserve. (Mortgage rates track 10-year Treasury rates, which have climbed since the Fed began cutting in September.)
Though Fed officials expect inflation to continue to cool over time from alarmingly high levels in 2022, the process could take longer than previously expected, in part because of potential trade and immigration policies under President-elect Donald Trump.
Trump has promised widespread deportations of undocumented immigrants and across-the-board tariffs on U.S. trading partners, policies that could rekindle inflation depending on how they are implemented.
After cutting interest rates by a full percentage point since September, Fed officials are widely expected to pause rate cuts at their upcoming meeting in late January. Investors in the futures market estimate a nearly 97 percent probability of the Fed holding its benchmark rates steady at a range of 4.25 percent to 4.50 percent at its January meeting, according to CME Group.
The central bank’s leaders strive to protect their independence from the White House and avoid commenting on politics or policy proposals. Ahead of the Fed’s last meeting for 2024 in December, its chairman, Jerome H. Powell, said it was premature to discuss the degree to which the president-elect’s proposals — including higher tariffs, lower taxes and deportation of immigrants — would factor into its decisions on interest rates.
But that began to change when Powell acknowledged that some Fed officials involved in forecasting interest rate cuts this year had begun thinking through the ways Trump’s fiscal policies could affect the economy — and that uncertainty around inflation was a reason to move slower on future cuts.
“It’s not unlike driving on a foggy night or walking into a dark room of furniture,” Powell told reporters at the conclusion of the December meeting. “You just slow down.”
