Inflation Rises To 2.9% In December: Core Slows, Yet Rising Energy Costs Put Fed's Target At Risk

BY Benzinga | ECONOMIC | 01/15/25 08:47 AM EST

Consumer inflation surged for the third straight month in December, rekindling concerns that the months-long cooling of price pressures could be over and casting doubt on the Federal Reserve’s ability to steer inflation toward its 2% target.

The headline Consumer Price Index rose 2.9% year-over-year in December, according to Wednesday’s data from the Bureau of Labor Statistics. This marks an increase from November's 2.7% and matches economist forecasts. Notably, it represents the third straight inflation increase and highest annual rate since July 2024.

On a monthly basis, consumer prices increased 0.4%, up from both the previous month's 0.3% gain and the 0.3% predicted by analysts.

The energy index climbed 2.6% in December, contributing to over 40% of the monthly increase in overall prices, with the gasoline index rising 4.4% during the month.

Core inflation, which strips out the volatile food and energy categories, rose by 3.2% on a year-over-year basis, below the 3.3% estimate. Month-over-month, core prices marked a 0.2% increase, matching estimates.

Items that witnessed an increase in December include shelter, airline fares, used cars and trucks, new vehicles, motor vehicle insurance and medical care.

Market Reactions: Yields, Dollar Tumble

Prior to the release of the CPI report, traders priced in one 25-basis-point rate cut by December 2025, according to the CME FedWatch tool.

The mixed December inflation data could keep hopes for more than one rate cut by year-end quite stretched.

Treasury yields tumbled in response to the data, with the policy-sensitive two-year yield down 9 basis points to 4.28%. The U.S. dollar also weakened, with a key index tracking the greenback falling 0.5% during the session.

Equity markets reacted with optimism. Pre-market futures on the S&P 500 rallied 1.5%, while contracts tied to the Nasdaq 100 soared 1.6%.

On Tuesday, the SPDR S&P 500 ETF Trust (SPY) inched up 0.1%, while the Invesco QQQ Trust, Series 1 (QQQ) declined 0.1%.

Read Next:

  • US Stocks To Open Higher Ahead Of December Inflation Data: All Eyes On Banking Stocks As JPMorgan, Goldman, Citi, Wells Fargo Report Quarterly Earnings

Photo via Shutterstock.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

fir_news_article