Inflation Holds Steady At 2.7% In December, Core CPI Surprises Lower (UPDATED)

Editor’s note: This article was updated to add more detail and context.

Inflation held steady in December, with fresh data showing price pressures remained firm above the Fed’s 2% target but failed to accelerate into year-end.

The Consumer Price Index rose 2.7% year over year in December, according to data released Tuesday by the Bureau of Labor Statistics. The reading matched economist expectations and was unchanged from November.

On a monthly basis, consumer prices increased 0.3%, also in line with forecasts.

In a positive surprise, core inflation, which strips out food and energy, held at 2.6%, coming in below the 2.7% estimate.

Where Prices Rose, And Where They Fell

Shelter costs rose 0.4% in December and were the largest contributor to the monthly increase in overall prices.

Food prices climbed 0.7%, with both food at home and food away from home posting equal gains. Energy prices also edged higher, rising 0.3% over the month.

Indexes that rose over the month included recreation, airline fares, medical care, apparel, personal care and education. Meanwhile, prices declined for communication, used cars and trucks, and household furnishings and operations.

“The softer-than-expected numbers came from the goods side,” said Tiffany Wilding, managing director and economist at PIMCO.

This could indicate that businesses kept prices steady during the holiday shopping season to protect market share, with tariff-related increases potentially coming later in the year.

The expert added that, despite the favorable inflation data, government shutdown-related distortions continued to linger.

Market Reactions

U.S. stock futures edged higher in premarket New York trading, with S&P 500 contracts up 0.3% as Wall Street headed toward record highs at the open.

The U.S. dollar weakened further, extending Monday's losses amid renewed political pressure on the Federal Reserve.

Treasury yields slipped modestly, with the 10-year yield down 2 basis points to 4.17%.

Fed futures are pricing a 95% probability that interest rates remain unchanged at the Jan. 28 meeting, according to CME FedWatch. The soft inflation data reinforced expectations for two rate cuts later this year.

L3Harris Technologies Inc (LHX). led S&P 500 gainers in premarket trading, surging 10% after the defense contractor announced plans to spin off its missile business into a new public company. The unit will be backed by a $1 billion Pentagon investment, with an IPO expected in late 2026.

Delta Air Lines Inc (DAL). lagged, falling 4% after fourth-quarter revenue came in slightly below Wall Street forecasts.

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