U.S. consumer prices rose at a faster pace in December, capping the final year of the inflation-plagued Biden administration and suggesting the Federal Reserve's efforts to rein in inflation may be running out of steam.
The consumer price index rose 0.4% from November, bringing the annual inflation rate to 2.9%, according to the Labor Department. This marked the fastest monthly rise in headline inflation since February, mainly due to higher prices for eggs and groceries and a 4.4% rise in gasoline prices.
Core inflation, which strips out the volatile food and energy categories, provided a somewhat more optimistic picture. The core index increased by 3.2% from the same month last year, a slight contraction from the 3.3% increase for three consecutive months. This slight slowdown came as a surprise to forecasters who had expected core inflation to remain flat.
Inflation has fallen significantly since mid-2022 (when it reached a 40-year high of over 9%), but the pace of improvement has slowed significantly. Progress has been uneven over the past few months, with inflation appearing to have plateaued at a high level inconsistent with the Fed's 2% goal.
Rising prices in major categories are again weighing on consumers. Food prices, which were relatively stable until late 2023, have resumed rising, with egg prices soaring by more than a third in the past year. Meanwhile, gasoline prices, although still below the previous year's level, recorded a significant increase in the same month.
Signs that inflation appears to be here to stay means consumers may have to wait even longer for relief in the form of lower borrowing costs. With the Fed sticking to its current policy stance, interest rate increases on mortgages, auto loans, and credit cards are likely to continue.
