Inflation cooled a bit in December, though prices for basics like food remained high, according to figures released by the U.S. Department of Labor. Consumer prices rose 0.3% from the previous month, the same increase as in November, while core prices—excluding food and energy—rose 0.2%, also matching November’s pace.
Core and overall inflation running at those rates would imply a gradual return toward the Federal Reserve’s 2% target over time, economists said as policymakers watched for confirmation after earlier data disruptions. The report arrived amid expectations that inflation could jump when the government resumed normal data collection after a six-week shutdown last fall, and it came with a measure of relief for analysts looking at the trajectory of cost pressures.
Michael Pearce, chief U.S. economist at Oxford Economics, said government shutdown distortions made inflation data harder to interpret. He added in a note to clients that the recent run of figures suggested inflation had peaked. As cooling inflation becomes more visible, traders and economists have increasingly focused on the possibility that the Fed could reduce its key interest rate later this year, which would feed into lower borrowing costs for mortgages, auto loans and credit cards.
Still, the report underscored why affordability remains a central political issue. Food prices jumped about 25% since the pandemic, and the December inflation release showed that trend was still weighing on budgets. Grocery prices rose 0.7% in December from the previous month, and they were up 2.4% compared with a year earlier, according to the Labor Department’s figures.
President Donald Trump took the opportunity to highlight the report’s headline numbers, posting on social media: “Great (LOW!) Inflation numbers for the USA.” He also celebrated what he said were estimates that the economy expanded at a solid pace in the last quarter of the year, writing: “Thank you MISTER TARIFF!” In parallel, the Trump administration has pursued initiatives it says are meant to address rising costs, including a proposed ban on Wall Street firms buying homes, a 10% cap on credit card interest rates, and the suspension of many tariffs on imported goods such as coffee, pasta and furniture.
Fed officials, however, have cautioned that tariffs may be keeping inflation higher than it otherwise would be. John Williams, president of the Federal Reserve Bank of New York and a voting member of the rate-setting committee, said in remarks that tariffs have likely increased inflation by about a half-percentage point. Williams also said that, aside from tariffs, underlying inflation trends had been favorable and that there were no signs of broader inflationary pressures, adding that he expects inflation to peak in the first half of this year before declining toward 2% by 2027.
The Labor Department’s report was also treated as a key read because it was described as the first clear measure of inflation since September. The six-week shutdown had suspended collection of price data used to compile inflation, and the government did not issue a report in October. Economists said November’s readings were partially distorted by the closure, pointing to how most prices were collected in the second half of November after reopening—when holiday discounts may have pulled figures down—and to the use of placeholder estimates when rental prices were not fully collected in October.
Even with newer and more comprehensive figures, Tuesday’s report suggested inflation was not moving higher with the updated data. The Labor Department said consumer prices rose 2.7% in December compared with a year earlier, the same figure as November, and core prices increased 2.6% year over year, also unchanged.
The broader inflation picture has improved from the 4-decade high of 9.1% reached in June 2022, but cost growth has stayed close to 3% since late 2023. The report noted that necessities such as groceries are about 25% higher than before the pandemic, while other essentials like rent and clothing have also risen, feeding sustained dissatisfaction even as inflation has eased from its peak.
The Federal Reserve has faced a balancing act: keeping borrowing costs high enough to fight inflation while also supporting hiring when unemployment worsens. As long as inflation remains above 2%, the Fed is likely to remain reluctant to cut rates more quickly, and the Fed reduced its key rate by a quarter-point in December. Chair Jerome Powell said at a press conference explaining the decision that the Fed would probably hold off on further cuts while it evaluates how the economy evolves.
Powell and Trump have clashed publicly over the pace of rate cuts. Trump has criticized the Fed for not lowering its key short-term rate more sharply, arguing it would reduce mortgage rates and the government’s borrowing costs, though the Fed does not directly set mortgage rates, which are driven by financial markets.
The report also landed as the Department of Justice served the Fed with subpoenas related to Powell’s congressional testimony in June about a $2.5 billion renovation of two Fed office buildings, a development described as casting a shadow over the Fed’s future ability to respond to inflation. Powell said Sunday that claims made by the White House suggested he either lied about building changes or altered plans inconsistent with planning commission approvals, and he characterized those claims as “pretexts” for an effort by the White House to assert more control over the Fed. He also said that the threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on its best assessment of what will serve the public, rather than following the preferences of the President.