U.S. Consumer Prices Rise More Than Expected in December

WASHINGTON (Reuters) – U.S. consumer prices increased slightly more than expected in December due to higher energy costs, indicating elevated inflation in line with the Federal Reserve’s forecasts for fewer interest rate cuts this year.

The consumer price index (CPI) rose 0.4% last month after a 0.3% increase in November, according to the Labor Department’s Bureau of Labor Statistics on Wednesday. Over the 12 months ending in December, the CPI advanced 2.9%, following a 2.7% rise in November.

Economists surveyed by Reuters had predicted a 0.3% gain in CPI and a 2.9% year-on-year increase.

Efforts to bring inflation back to the U.S. central bank’s 2% target faced challenges in the second half of last year. A resilient economy, potential broad tariffs on imports, and large deportations of undocumented immigrants have influenced the Federal Reserve’s outlook, suggesting a shallower rate-cut path for the year ahead.

President-elect Donald Trump’s administration also aims to implement tax cuts, which are expected to stimulate the economy.

Inflation expectations among consumers rose in January, with households worried that tariffs would raise prices of goods. Excluding the volatile food and energy sectors, the core CPI increased 0.2% in December, while the core CPI had risen 0.3% for four consecutive months. Over the 12 months to December, the core CPI increased 3.2%, down from 3.3% in November.

No interest rate cuts are anticipated at the Fed’s policy meeting on January 28-29. While fewer rate cuts are expected this year, opinions vary on whether the central bank will cut borrowing costs again before the second half of the year.

Goldman Sachs predicts two rate cuts this year, in June and December, revised from three, while Bank of America Securities posits that the Fed’s easing cycle has concluded.

The central bank commenced its easing cycle in September and has decreased its benchmark overnight interest rate by 100 basis points to the current 4.25%-4.50% range. The last rate reduction occurred in December, when policymakers projected two rate cuts this year, down from four forecasted in September. The policy rate was raised by 5.25 percentage points between March 2022 and July 2023.

(This story has been corrected to clarify the interest rate level in paragraph 11.)