The latest inflation figures showed that consumer prices rose 2.6% in December from a year earlier, slightly higher than the previous month’s 2.4% annual pace. However, core prices, excluding food and energy categories, increased 2.8%, which is consistent with the Federal Reserve’s 2% target.
Some positive signs were reported, as measured inflation rates slowed down. Core prices ticked up 0.2% from the previous month, nearly matching the Fed’s annual target. This trend is expected to continue in the coming months.
Federal Reserve officials paused their interest rate cuts earlier this year due to inflation being stuck at about 2.5%, above their target for six months. However, a growing risk of tariffs imposed by President Trump could push up prices further.
Businesses may raise prices at the start of the year, which could affect next month’s inflation figures. Economists believe that core prices will decline steadily in the coming months as higher inflation readings from earlier last year fall out of the year-over-year figures.
The Commerce Department report also showed that consumer spending rose 0.7% in December, driven by steady wage gains and higher stock prices. Incomes increased 0.4%, leading to a decrease in the savings rate to 3.8%.
Despite underlying trends pointing to lower inflation ahead, Americans are ramping up spending on goods before potential tariffs are imposed. Apartment rental prices and other housing costs are slowly moderating, while wage growth has slipped due to a sluggish labor market.
Federal Reserve Chair Jerome Powell expressed optimism about future progress on inflation but emphasized the need for continued monitoring. The Fed is likely to keep its key rate at 4.3%, expecting higher borrowing costs to weigh on spending and bring inflation down further.
Source: https://apnews.com/article/inflation-economy-federal-reserve-4619a1d5d70a90b6a870535906d36028