- Inflation increased by 2.9% in December 2024, marking three consecutive monthly rises.
- Rise in energy costs accounted for over 40% of the uptick.
- Mountain West states had the lowest regional inflation, with an increase rate of 1.7% year-over-year.
U.S. inflation ended the year riding a streak of increases with December’s 2.9% annual reading marking three straight months of incremental climbs in the Labor Department’s Consumer Price Index measure.
Wednesday’s CPI report found prices on consumer goods and services moved up 0.4% on a monthly basis in December after showing a 0.3% increase in November. A rise in energy costs accounted for over 40% of December’s uptick, according to the report, with overall energy costs up 2.6% last month and gasoline rising 4.4% month-over-month, though the average price of gas across the U.S. was down 3.4% on an annual basis in December.
Rising food costs also played a role in pushing up the overall inflation rate last month with both food away from home and groceries up 0.3% from November to December.
Other category indexes that moved up in December include housing, airfares, used cars and trucks, new vehicles, motor vehicle insurance and medical care. The indexes for personal care, communication and alcoholic beverages were among the few major indexes that decreased over the month, per the report.
Energy and food costs helped drive up so-called headline CPI inflation in December, but the core inflation reading, which strips out volatile food and energy prices, crept down in December, falling to 3.2% from November’s 3.3% measure.
The Mountain West group of states, which include Utah, had the lowest regional inflation in the country in December with overall prices up 1.7% from a year ago. December’s 12-month inflation reading for the Mountain West matched November’s 1.7% rate.
While U.S. inflation has ebbed markedly from a peak of 9.1% in June 2022, a four-decade high, the rate of price increases on consumer goods and services has remained stubbornly north of the Federal Reserve’s target rate of 2%.
The Fed levied three straight reductions to its benchmark federal funds rate in its final meetings of 2024 but signaled last month that it was moving to a wait-and-see stance on further cuts and reduced its forward-looking guidance for 2025 from four additional reductions to a more likely two.
“Today’s CPI may help the Fed feel a little more dovish,” Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, told CNBC. “It won’t change expectations for a pause later this month, but it should curb some of the talk about the Fed potentially raising rates. And judging by the market’s initial response, investors appeared to feel a sense of relief after a few months of stickier inflation readings.”
A surprisingly positive federal jobs report released last week, showing U.S. companies added 256,000 new positions in December, should also prove further fodder for the Fed to embrace a near-term pause on rate adjustments.
The Fed’s two-part task, as mandated by Congress, is to maintain price stability alongside maximum unemployment. While the monetary body battled a post-pandemic inflation surge by levying 11 straight rate increases that raised its benchmark rate to 5.25% to 5.5%, the highest in 23 years. December’s cut, along with reductions in September and November, have brought the Fed’s overnight intra-bank lending rate down to 4.25% to 4.5%.