US inflation steady in December as core CPI remains at slowest pace since 2021

• Shelter costs drove monthly increases, rising 0.4% and remaining the largest contributor to overall CPI gains, while food prices surged 0.7% with most grocery categories showing increases except eggs, which fell 8.2%
• Energy prices were mixed, with natural gas up 4.4% but gasoline down 0.5%, and some tariff-exposed categories like household furnishings and apparel saw increases while appliance prices dropped 4.3%
• Market pricing shows 95% probability the Federal Reserve will hold rates steady at its January 27-28 meeting, as analysts note inflation remains above target but isn't reheating, giving policymakers little reason to cut rates

Summary: US December Inflation Data Meets Expectations

Key Figures

US inflation remained steady in December 2024, with the Consumer Price Index (CPI) rising 2.7% year-over-year, matching economist forecasts exactly. Monthly prices increased 0.3%. Core CPI, excluding volatile food and energy, rose 2.6% annually and 0.2% monthly—matching November's rate and marking the slowest pace since March 2021.

Main Drivers

Shelter costs were the primary contributor to monthly increases, rising 0.4% in December, reflecting persistent high rents and housing costs. Food prices surged 0.7% monthly, with notable increases including other food at home (+1.6%) and dairy products (+0.9%). Egg prices fell sharply by 8.2%.

Energy prices were mixed, increasing 0.3% overall. Natural gas rose 4.4%, while gasoline declined 0.5% monthly (5.3% before seasonal adjustment).

Market Implications

The data reinforced expectations that the Federal Reserve will hold rates steady at its January 27-28 meeting, with markets pricing in a 95% probability of no change. Fed officials, including NY Fed President John Williams, signaled no urgency to cut rates.

Analysts noted inflation remains above the Fed's 2% target but isn't accelerating. Morgan Stanley's Ellen Zentner stated the report "doesn't give the Fed what it needs to cut interest rates later this month."

The report follows softer November inflation data and a recent jobs report showing unemployment retreating from four-year highs, further reducing pressure for immediate rate cuts.