CPI inflation in December 2024:

The prices consumers pay for a variety of goods and services rose again in December, but the end of 2024 closed somewhat better on inflation news, especially for housing.

The consumer price index rose a seasonally adjusted 0.4% month-over-month, bringing the 12-month inflation rate to 2.9%, the Bureau of Labor Statistics said Wednesday. Economists polled by Dow Jones had expected 0.3% and 2.9%, respectively.

However, excluding food and energy, the core annual CPI came in at 3.2%, down a notch from the previous month and slightly better than the 3.3% forecast. The headline index rose 0.2% month-on-month, also 0.1 percentage point less than expected.

Much of the CPI increase came from a 2.6% increase in energy prices for the month, driven by a 4.4% increase in gasoline prices. According to the BLS, this accounted for about 40% of the index’s growth. Food products also became more expensive – they went up by 0.3% in a month.

On an annualized basis, food prices rose by 2.5% in 2024, while energy prices fell by 0.5%.

Home prices, which make up about one-third of the CPI, rose 0.3% but rose 4.6% from a year earlier, the slowest annual gain since January 2022.

Futures on the stock market rose after the issue, while Treasury bond yields fell.

​​​​​​While the numbers are short of forecasts, they still show that the Federal Reserve has some work to do to meet its 2% inflation target. Headline inflation is down from 3.3% in 2023, while core inflation was 3.9% a year ago.

“Today’s CPI may help the Fed feel a little more dodgy. That won’t change expectations for a pause later this month, but should stop some talk of a potential Fed rate hike,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “And judging by the market’s initial reaction, investors appeared to be relieved after months of tougher inflation readings.”

Inflation readings this week — the BLS released its Product Price Index on Tuesday — are expected to be delayed when the Fed convenes a policy meeting later this month.

While the market cheered the CPI release, the news was less positive for workers, with hourly wages falling an inflation-adjusted 0.2% for the month, resulting in a year-over-year gain of just 1%. The BLS said in a separate release.

Details in the inflation report were otherwise mixed.

Prices for used cars and trucks jumped 1.2%, while prices for new cars also rose 0.5%. Transport services were up 0.5% and rose 7.3% year-on-year, while egg prices jumped 3.2%, taking the year-on-year gain to 36.8%. Auto insurance was up 0.4% and up 11.3% for the year.

“Inflation rates are currently facing a ‘last mile’ problem, where progress in reducing price pressures has slowed,” said Sung Won-son, a professor at Loyola Marymount University and chief economist at SS Economics. “The core drivers of inflation, including gasoline, food, vehicles and housing, remain persistent challenges. However, there are signs of hope that long-term inflationary pressures may continue to ease, helped by softening trends in key sectors such as housing and employment. expenses”.

The report notes that markets are concerned about the state of inflation and the Fed’s potential response. Tariffs and mass deportations promised by President-elect Donald Trump have fueled concerns about inflation.

Job growth in December was much stronger than economists had expected profit 256,000 further raising concerns that the Fed could remain on standby for an extended period and even consider raising interest rates if inflation proves tougher than expected.

December’s CPI report, combined with Tuesday’s relatively soft wholesale price readings, suggest that while inflation is not cooling sharply, it is also showing no signs of picking up again.

A separate report from the New York Fed on Wednesday showed a softening in manufacturing activity, but prices and payments rose substantially.

Futures prices still point to near-certainty that the Fed will stay at the Jan. 28-29 meeting, but CME Group data showed a more favorable view of two rate cuts within a year, suggesting they would increase by a quarter percentage point. Markets expect the next cut to likely take place in May or June.

The Fed uses the Commerce Department’s Consumer Price Index as its primary inflation forecast. However, CPI and PPI are included in this calculation.

According to Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, the two readings likely mean core PCE will rise just 0.2% in December, keeping the annual rate at 2.8%.