United States: Inflation Remains Stable

Unlike the surprise created by the October and November figures released together in mid‑December, today’s results are close to expectations. Consensus called for a 0.3% gain for both headline and core CPI; the core outcome is therefore slightly softer than expected, but broadly consistent with our own forecasts. Notably, month‑over‑month changes for December (one‑month window) are stronger than those measured over two months (from September to November). With this acceleration, price trends return closer to what was observed before the shutdown.

In December, food prices accelerated again, posting their strongest monthly increase since October 2022. Prices for beef, poultry, and dairy products saw notable gains. Energy prices rose 0.3% despite lower gasoline prices, a change entirely driven by a 4.4% increase in natural gas.

That said, there remains no clear effect from various tariffs on core inflation. Goods prices excluding food and energy were essentially flat in December and rose only 0.06% across the preceding two months. The three‑month annualized change fell from 2.9% in September to just 0.2% in December. Still, in the final month of 2025, there was wide divergence across categories: apparel prices rose 0.6% and over‑the‑counter medications increased 1.8%, while used vehicle prices declined 1.1% and appliance prices fell 4.3%.

On the services side, inflation accelerated in December following the implied softness in October and November. The 0.3% monthly change is almost double the two‑month combined change (+0.16%). A somewhat stronger increase in shelter (including a sharp rise in hotel prices) and a 5.2% monthly jump in airfares explain the gain. Even so, the three‑month annualized change remains more modest than before the shutdown, at 1.8% in December compared with 3.9% in September.

Inflation appears to be normalizing. It remains above the Federal Reserve’s (Fed) target, yet is relatively subdued in the context of significantly higher tariffs than a year ago. This suggests firms are still reluctant to raise prices for their customers; whether this restraint can persist remains to be seen. As for the Fed, notwithstanding its issues with the Department of Justice, it should stay on the sidelines at its next meeting. However, if inflation and job creation remain sluggish, pressures could build for additional policy rate cuts later this year.