WE inflation The trend accelerated last month with rising prices for gasoline, eggs and used cars, but underlying price pressures also showed signs of easing somewhat.
The report released by the Labor Ministry on Wednesday showed that the consumer price index rose 2.9% in December year-on-year, the highest since July, compared with 2.7% in November. This is the third consecutive increase after inflation fell to 2.4% in September, its lowest level in three and a half years.
However, excluding the volatile food and energy categories, so-called core inflation fell to 3.2%, after being stuck at 3.3% for three consecutive months.
The slowdown in core price increases was greeted with relief on Wall Street, with Dow Jones futures prices jumping nearly 700 points when the report was released. Many economists and investors are concerned about inflation remaining above the Fed’s 2% target, after prices have fallen steadily in 2023 and through much of last year.
Those concerns have driven up interest rates on Treasury securities, which also pushed up borrowing costs for mortgages, cars and credit cards, even as the Fed lowered its benchmark rate.
Still, the overall rise in consumer prices underscores that inflation remains persistent, even as the threat of potentially inflationary policies from the Trump administration, such as universal tariffs and mass expulsions of illegal migrants, looms. .
Egg prices rose last month, but not as much as many economists feared, rising 3.2% in December alone. An outbreak of bird flu decimates many chicken farms, reducing the supply of eggs. Gas prices increased by 4.4%, according to the report.
The national average price for a gallon of gasoline Wednesday was $3.09, up 7 cents from last month, but only 2 cents more than last year at this time.
On a monthly basis, consumer prices increased by 0.4% in December, the largest increase since last March. Core prices rose just 0.2%, after four straight months of 0.3% increases, a positive sign that some price pressures may be easing somewhat.
Last Friday’s surprisingly strong jobs report sent stock and bond prices plunging on concerns that a healthy economy would keep inflation high, preventing the Fed from cutting rates further.
Receive national news daily
Get the day’s top news, politics, business and current affairs headlines delivered to your inbox once a day.
On Tuesday, Trump said he would create the “Foreign Revenue Service” to collect tariffs, suggesting he expects many duties to ultimately be imposed, although he also said he intended to use them as bargaining chips. During the campaign, he promised to impose tariffs of up to 20% on all imports and up to 60% on goods from China.
Last week, minutes of the Fed’s December meeting showed that the central bank’s economists expect inflation to remain about the same this year as in 2024, pushed up slightly by the increase in customs tariffs.
Fed Chairman Jerome Powell said the central bank would keep its benchmark interest rate high until inflation returns to 2%. As a result, Wall Street investors expect the Fed to cut its benchmark rate just once this year, from its current level of 4.3%, based on futures prices.
Other borrowing costs remain elevated, in part because of expectations of higher inflation and few rate cuts from the Fed. Mortgage rates, which are heavily influenced by the yield on 10-year Treasury notes, rose for the fourth straight time last week to 6.9%, well above pandemic-era lows, below 3%.
Thanks to the resilience of the labor market – the unemployment rate fell to 4.1% last month – consumers are able to continue spending and drive growth. However, if demand exceeds what companies can produce, it could fuel further inflation.
Earlier this month, several prominent economists, including former Federal Reserve Chairman Ben Bernanke, agreed that the tariffs Trump ultimately imposes will likely have only a minor effect on inflation. The issue was discussed at the annual meeting of the American Economic Association in San Francisco.
Jason Furman, a top economic adviser to the Obama administration, said at the conference that the tariffs could increase the annual inflation rate by just a few tenths of a percentage point. But he added that even an increase of that magnitude could be enough to affect the Fed’s rate decisions.
“You’re in a world where Trump’s policies look more like tenths than something cataclysmic,” he said on January 4. “But I think we’re also in a world where the direction, whether rates stay the same, is going down. , or increase, depends on these tenths.
© 2025 The Canadian Press