What You Should Know About the Crucial CPI Inflation Report Coming This Tuesday

Inflation Trends Remain Elevated

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Inflation continues to exceed the Federal Reserve’s preferred level, remaining persistently high.

Main Points

• Experts predict that consumer prices in December likely increased by 2.7% compared to the previous year, matching November’s annual growth rate.
• Core inflation—which excludes food and energy—is expected to have risen to a 2.7% yearly rate, up from 2.6% in November, as temporary effects from the government shutdown in November dissipated.
• Most analysts anticipate that inflation will gradually ease throughout the year, as slower rent hikes help counteract ongoing upward pressure from tariffs.

Recent Inflation Data and Its Implications

If you noticed your holiday expenses were higher than last year, you’re not alone. According to projections, the Bureau of Labor Statistics is set to report that the Consumer Price Index climbed 2.7% year-over-year in December, mirroring November’s pace. Similarly, core prices—excluding the more volatile food and energy categories—are estimated to have increased by 2.7% over the past year, up slightly from 2.6% in November, based on surveys from Dow Jones Newswires and The Wall Street Journal.

If these forecasts are accurate, it would signal a slight uptick in inflationary pressures following an unexpected slowdown in November. Since 2021, inflation has consistently surpassed the Federal Reserve’s 2% target, with recent months seeing additional increases due to tariffs introduced during President Donald Trump’s administration.

Some economists suggest that November’s inflation figures may have been artificially low because data collection was delayed by the government shutdown, which ended that month. As a result, December’s numbers may reflect a rebound as those distortions are corrected.

Economic Impact and Federal Reserve Response

The Federal Reserve is expected to closely monitor the latest inflation report to determine whether tariffs are having a greater impact on prices than anticipated. Although the Fed has reduced its key interest rate three times recently in response to a weakening job market, persistent inflation could prompt policymakers to pause further rate cuts in the near future.

Economists at Wells Fargo Securities, led by Sarah House, noted that the lengthy government shutdown caused significant disruptions in November’s inflation data, but most of these anomalies should be resolved in the December report. The shutdown prevented the bureau from conducting its usual price surveys until late November, which coincided with Black Friday sales and was much later than normal.

Looking Ahead: Inflation Expectations

Many forecasters believe that inflation will moderate over the coming year, in part because rent increases have slowed following their sharp rise during the pandemic. Additionally, a cooling job market means that wage growth is not fueling inflation as much as before. These factors are expected to offset the continued influence of tariffs on prices.

According to Goldman Sachs researchers led by chief U.S. economist David Mericle, the most reliable indicators for predicting future inflation—the health of the labor market and leading signals from rent trends—now suggest a lower inflation outlook compared to the end of the previous economic cycle.