Getty ImagesA surge in energy and food prices hit the United States last month, as progress on price stabilization remained elusive.
On average, prices in December rose 2.9% from a year earlier, compared to 2.7% in November, the Labor Ministry said.
Energy prices accounted for more than 40% of the rise in inflation last month, according to the monthly report. It also showed egg prices soaring by more than 36% from 2023 as a bird flu crisis hit supplies and led to shortages.
But prices of other products rose less than expected during the month, allaying market fears that the U.S. central bank may need to act more aggressively to stabilize prices.
So-called core inflation – which does not take into account the often high prices of food and energy – increased by only 3.2% compared to December 2023 and by only 0.2% compared to December 2023. to November, an increase lower than what analysts expected.
Economists say this measure is a better indicator of underlying trends.
U.S. stock prices jumped and bond yields – interest rates on U.S. government debt – fell in early trading Wednesday in New York, reflecting market relief.
Seema Shah, chief global strategist at Principal Asset Management, said the latest figures should alleviate “some of the anxiety that the United States is in the early stages of a second wave of inflation.”
“Perhaps the key takeaway is that markets are likely to be shaken up over the next few data releases, as investors look for a narrative they can be comfortable with for more than a few days at a time ” she said.
Inflation, the rate of increase in prices, has declined significantly in the United States since 2022, when it exceeded 9%.
As a result, investors expected the Federal Reserve, which had raised rates to their highest levels in more than two decades to combat the problem, to cut them this year.
But the Fed is less likely to cut interest rates if the economy is growing. As such, last month’s job creation figures stronger than expected have raised doubts about the extent to which US interest rates will fall in the coming months.
Investors also fear that President-elect Donald Trump’s plans for tariffs, mass expulsions of migrants and tax cuts could put upward pressure on prices. If this boosted inflation, it would also make a Fed rate cut less likely.
Last month, data showed prices of many items rose, including used cars, airline tickets, medical care and auto insurance.
Food prices rose 0.3% during the month and 1.8% compared to last year.
Rents and other property prices – which have been among the main drivers of inflation – rose 0.3% from November, the same pace as the previous month. They are up 4.6% compared to December 2023.
Gasoline prices increased 4.4% from November, but remained lower than a year ago.
The Fed is widely expected to keep its benchmark rate, which now stands at around 4.3%, unchanged at its meeting this month.
Tina Adatia, head of fixed income for client portfolio management at Goldman Sachs Asset Management, said inflation would need to slow further for the Fed to cut rates further, but that today’s data would keep these hopes.
“While today’s release is likely insufficient to put a January rate cut back on the table, it reinforces the argument that the Fed’s rate-cutting cycle has not yet reached its end.” , she said.
