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THE BIZNOB – Global Business & Financial News – A Business Journal – Focus On Business Leaders, Technology – Enterpeneurship – Finance – Economy – Politics & LifestyleTHE BIZNOB – Global Business & Financial News – A Business Journal – Focus On Business Leaders, Technology – Enterpeneurship – Finance – Economy – Politics & Lifestyle

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Core inflation rate slows to 3.2% in December, less than expected

Core inflation eased to 3.2% in December 2024, signaling progress in taming rising prices. However, high costs in shelter and transportation persist, straining household budgets. While the Federal Reserve may pause rate hikes, slow wage growth and inflationary pressures mean Americans face an uneven path toward economic relief and stability.

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Inflation has weighed heavily on the minds of consumers and policymakers in recent years, but the latest numbers suggest some progress in taming rising prices. On January 15, 2025, the U.S. Bureau of Labor Statistics (BLS) released its December Consumer Price Index (CPI) report, offering a glimmer of hope. Headline inflation increased 2.9% year-over-year, down from 2023’s 3.3%, while core inflation—which excludes volatile food and energy prices—eased to 3.2%. Though this signals progress, the journey toward price stability is far from over.

December saw the CPI rise 0.4% month-over-month, with energy prices accounting for much of this increase. Gasoline costs surged 4.4%, contributing to nearly 40% of the monthly inflation uptick. Meanwhile, food prices rose a moderate 0.3%, and shelter costs grew just 0.3%—their smallest annual increase (4.6%) since early 2022.

However, key sectors remain stubbornly expensive. Vehicle-related expenses continue to weigh on consumers, with used car prices rising 1.2% in December and transportation services ballooning 7.3% from the previous year.

Economists see these mixed signals as cautiously encouraging. “This report suggests the Federal Reserve has room to pause on rate hikes,” according to Ellen Zentner, Chief Economic Strategist at Morgan Stanley Wealth Management. Yet she emphasizes that the Fed’s 2% inflation target remains elusive, and challenges persist in areas like shelter and transportation, where costs remain elevated.

For everyday Americans, the cooling of inflation doesn’t necessarily translate into immediate financial relief. Real wages—adjusted for inflation—dropped 0.2% in December, and their yearly increase remains slim at just 1%. This points to a growing disconnect between slowing inflation and paycheck power, especially as high costs for essentials like housing and transportation strain household budgets.

Economist Sung Won Sohn of Loyola Marymount University described this phase as the “last mile” in the inflation fight, where certain expenses—like shelter costs and labor-driven services—continue to resist downward pressure. Until prices in these categories stabilize, many families will likely feel squeezed, even amid overall progress.

This latest CPI reading has led financial markets to speculate that the Federal Reserve may pause interest rate hikes at its meeting on January 28–29. Futures markets now indicate a tempered approach to monetary tightening, with some analysts predicting as many as two rate cuts later in 2025. Current projections even point to the core Personal Consumption Expenditures (PCE) index—closely watched by the Fed—settling at an annual 2.8%.

Still, the Fed is cautious about declaring victory. A strong labor market, evidenced by 256,000 new jobs added in December, continues to fan inflationary pressures. Robust wage growth and sustained consumer spending make the path to 2% inflation more challenging. Policymakers will need to weigh these dynamics carefully before setting their course.

For consumers, the news offers some encouragement but no cause for celebration yet. Slowing inflation should ease rising costs over time, but higher prices for housing, transportation, and everyday necessities remain a thorn in the side of household budgets.

Market watchers appear more optimistic. Softer inflation data has already spurred rallies in stock futures and lowered Treasury yields, signaling expectations of a less aggressive Federal Reserve. However, experts like Samuel Tombs, Chief U.S. Economist at Pantheon Macroeconomics, urge caution. Core inflation, though on a promising trajectory, remains vulnerable to disruptions in labor, energy, and housing markets.


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