The drop in core inflation relieves investors.
The U.S. annual inflation rate increased for the third straight month in December 2024, finishing 2024 slightly below 3 percent as energy and shelter drove much of last month’s jump.
According to the Bureau of Labor Statistics (BLS), the annual inflation rate rose to 2.9 percent from 2.7 percent in November 2024.
Estimates collected by FactSet Insights suggested that the rise in the consumer price index (CPI) would be 2.8 percent. The latest reading is below the trailing 12-month average of 3 percent.
Monthly inflation was 0.4 percent, higher than the consensus estimate of 0.3 percent.
Core inflation, which excludes the volatile energy and food categories, slowed to 3.2 percent from 3.3 percent. This came in below economists’ projections of 3.3 percent.
The core CPI ticked up by 0.2 percent, in line with market forecasts.
The index for energy advanced by 2.6 percent, representing more than 40 percent of the monthly CPI increase. The gasoline index surged by 4.4 percent, while utility-piped gas service advanced by 2.4 percent.
Crude oil and natural gas prices have experienced significant momentum over the past month, fueled by supply concerns, frigid temperatures, and the administration’s sweeping sanctions on Russian energy.
Meanwhile, shelter costs rose by 0.3 percent monthly and remained elevated at an annualized pace of 4.6 percent.
Economists and monetary policymakers expected shelter inflation to decline sharply by now. But while the shelter index remains high, it has been showing signs of easing.
The CPI report emphasized broad-based inflation pressures, with a wide array of goods and services climbing last month, such as airline fares (3.9 percent), eggs (3.2 percent), ham (1.4 percent), used cars and trucks (1.2 percent), transportation services (0.5 percent), and motor vehicle insurance (0.4 percent).
The Federal Reserve’s preferred personal consumption expenditure price index will be the next major inflation report later this month.
Market Reaction
The financial markets reacted positively following the December 2024 inflation report, rallying ahead of the opening bell. Investors were encouraged by the decrease in core inflation, which is closely monitored by the U.S. central bank.
By Andrew Moran
