US consumer prices rose 2.7% annually in December, closing out a year that saw slight progress on inflation but continued affordability concerns for many Americans.
The latest Consumer Price Index, which measures the average change in prices for some commonly purchased goods and services, showed that the annual pace of inflation was unchanged from November, according to Bureau of Labor Statistics data released Tuesday.
However, the monthly pace of inflation accelerated to 0.3% from November, when prices rose at an estimated average pace of 0.1% (an aftereffect of shutdown-distorted data). December’s increase was driven by persistent housing-related inflation alongside sharply rising food prices (up 0.7% from the month before) and higher energy prices (up 0.3%).
For December, economists were expecting that monthly CPI would rise 0.3% from November and ease slightly to 2.6% on an annual basis, according to FactSet estimates. Expectations were similar for core inflation, which excludes food and energy: Economists anticipated core CPI would rise by 0.3% and the annual rate would tick up to 2.7%.
Tuesday’s report showed that core CPI, a closely watched indicator of underlying inflation, rose 0.2% from November, which brought the annual rate to 2.7% in December from the year before.
At the end of 2025, inflation continued to run at a higher-than-normal pace. However, the final CPI for the year did show that some progress occurred: The overall and core inflation rates of 2.7% were cooler than January’s 3% and 3.3% rates, respectively, BLS data shows.
“I think it’s safe to say that inflation is not reaccelerating at this point, and signs point to it continuing to moderate – albeit slowly,” Elizabeth Renter, senior economist at NerdWallet, told CNN in an interview. “I do think there are still risks out there.”
One of the biggest risks, she noted, is the continued impact from tariffs.
Sweeping tariffs were expected to raise prices and put upward pressure on overall inflation; however, they weren’t anticipated to cause price-hikes to skyrocket like they did in 2022. The idea was that the price increases would be more “one-time” in nature.
However, since the policy has rolled out in fits and starts, the impacts have been delayed and uneven. Many goods categories have shown spikes in prices throughout last year – some of the biggest being in coffee, home furnishings, major appliances, toys, window coverings and tableware – however, others have been largely absorbed by manufacturers, retailers and importers.
Still, businesses revisit their pricing decisions at the start of the year, noted economist Gregory Daco of EY-Parthenon, so it’s possible there could be a burst of goods inflation in the first quarter from firms who will try to pass along the higher costs they’ve been stomaching for months now.
Lingering data distortions
December’s CPI report provided the clearest picture on the trajectory of inflation in three months, but some data distortions continue to linger.
November’s report was abnormal in many aspects, because data collection for that month and for October was negatively impacted by the government shutdown that lasted from October 1 to November 12. As a result, the majority of prices couldn’t be collected for October, an increased number of estimates were made, and data collection starting later in November likely meant holiday discounts held greater influence.
As a result, the prior CPI report presented a cooler picture of inflation.
Most of those quirks were cleared up in December, but not all. For example, the monthly price changes for some sub-indexes were more drastic than their recent trends.
However, the most significant shutdown-related data issue isn’t expected to resolve itself until April: Housing-related inflation (captured in the shelter index), which carries the most weight among the “basket” of goods and services that feed into the CPI, expectedly bounced back in December from a deceptively muted reading in November.
Because of the missing data, the BLS carried forward previously reported shelter costs, resulting in an assumption that rental inflation was 0 in October.
However, it’s still running slower than it should, and dragging down the overall inflation rate as a result, economists say. The annual and core rates are running about 0.1 percentage points lower than they should be, noted Dean Baker, senior economist at the Center for Economic and Policy Research.
This will eventually correct itself, but likely won’t happen until April, Baker said. (The BLS uses rotating six-month panels for its rent price data).
What could come in 2026
Tuesday’s data is not expected to move the needle for the Federal Reserve, which will make its latest interest rate decision at the end of the month.
“This CPI report does not signal an inflation reacceleration, but it also does not provide the Federal Reserve with a strong justification for rapid easing,” Sung Won Sohn, chief economist at SS Economics, and finance and economics professor at Loyola Marymount University, wrote in a note on Tuesday.
“The most likely path is a gradual shift toward rate cuts over time, but with policymakers maintaining caution until shelter inflation and services inflation show clearer improvement,” Sohn added.
The Fed has been the subject of unprecedented attacks from the White House under President Donald Trump’s second term for not lowering interest rates more dramatically, citing the upward risks to inflation from domestic policies such as tariffs and broader geopolitical concerns.
As for inflation, it’s likely to remain in the range of 2.2% to 2.7% in 2026, because of the push-and-pull effect that these sweeping policies are having on businesses and American households, said Eric Teal, chief investment officer at Comerica Wealth Management.
“The inflationary pressures from tariffs are being countered by the deflationary impact of tighter immigration in the housing market,” he wrote Tuesday. “Net immigration is approaching zero this year and given the supply glut of apartments, vacancy rates are expected to increase and rents to decline.”
At the same time, inflationary pressures are expected to continue in leisure and hospitality industries, which could experience worker shortages because foreign-born workers are more heavily represented.
“However, significant deflationary pressure from AI on wages is still in the making,” he added.
All told, the latest piece of inflation data doesn’t drastically change the day-to-day picture for American households, said NerdWallet’s Renter.
“People are more sensitive to price levels than they are to inflation, or the rate of change over time; people are still feeling the pain from the high inflation period we had just a few years ago,” she said. “It’s going to take even longer for that pain to subside.”
Additionally, wage growth has moderated and longstanding affordability concerns in critical areas such as housing will continue to serve as pain points for many Americans, she added.
