Home Finance Here is the inflation breakdown for December 2024 – in one graph

Here is the inflation breakdown for December 2024 – in one graph

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Here is the inflation breakdown for December 2024 – in one graph

A customer browses eggs on partially empty shelves at a supermarket in Lawndale, California on January 2, 2025.

Patrick T. Fallon | AFP | Getty Images

Inflation rose in December due to higher energy and food prices, the Bureau of Labor Statistics reported Wednesday.

From the desk consumer price indexan inflation gauge, rose 2.9% this month compared to the previous year.

That’s higher than the annual inflation rate of 2.7% in November, and higher than a recent low from 2.4% in September.

While the upward movement may seem discouraging, evidence suggests inflation should resume its downward trend in 2025, economists said.

But they warn that President Donald Trump’s new administration could halt or reverse that progress if it pursues policies like tariffs and tax cuts, which could be inflationary depending on their scope.

“The main wildcard here is policy,” Joe Seydl, a senior market economist at JP Morgan Private Bank, said of the inflation trajectory.

The consumer price index, or CPI, measures how quickly prices rise or fall for a basket of goods and services, from haircuts to coffee, clothing and concert tickets.

CPI inflation has fallen significantly from a pandemic-era high of 9.1% in June 2022. However, it remains above the Federal Reserve’s target. The central bank aims for an annual interest rate of 2% in the long term.

The Fed also uses another measure of inflation, the personal consumption expenditure price index. CPI values ​​are typically about 0.2 to 0.3 percentage points higher than the PCE, Seydl said.

“We’re not that far away,” Seydl said. “By the end of this year, we expect year-over-year rates to return to these targets.”

Eggs are a ‘swing factor’

There were some problem areas in December.

For example, food prices rose 0.3% from November to December, according to CPI data. An increase of about 0.2% per month would be consistent with meeting the Fed’s target, economists said.

Eggs are a “swing factor” that contributes to that increase, Seydl said.

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An outbreak of the avian flu, known as bird flu, in the US has had a “significant impact” on egg prices, he said. The virus is highly contagious among birds and has killed millions of egg-laying chickens, reducing the egg supply.

Egg prices rose 3.2% from November to December, the biggest increase for any grocery item, according to the CPI. They are up 37% since December 2023.

Brandon Bell | Getty Images News | Getty Images

Gasoline inflation also rose, with prices rising 4.4% from November to December, according to CPI data.

Consumers may not see that in the real world: Average prices at the pump fell about two cents last month, from $3.03 on Dec. 2 to $3.01 per gallon on Dec. 30, according to the weekly Energy Information Administration. facts.

Federal statisticians adjust inflation data for seasonal patterns; Gasoline prices fell less than normal in December, and the CPI recorded this lower-than-normal decline as an increase in inflation, Seydl said.

According to the CPI, gasoline prices have fallen by more than 3% in the past year. Groceries increased by 1.8%.

Shelter inflation continues to retreat

Meanwhile, there were some bright spots in the CPI report, such as shelter.

The 4.6% annual inflation for housing, December was the lowest since January 2022. As the largest component of the price index, it has a significant impact on the inflation trajectory.

Economists prefer to look at a measure known as the “core” CPI, which ignores volatile food and energy prices, for a more accurate read of underlying inflation dynamics.

The picture is better there: Core CPI fell to 0.2% monthly in December, after remaining at 0.3% monthly since August. Annual core inflation fell from 3.3% to 3.2%.

Core inflation falls to 3.2% in December, lower than expected

“It is encouraging that inflation continues to decline slowly but surely,” said Mark Zandi, chief economist at Moody’s.

“The only difference between where we are now and the Fed’s target is housing cost growth,” he said. “That is now definitely slowing down.”

Zandi estimates that inflation could return to target levels in the spring or summer, barring any speed bumps from the Trump administration’s policies.

Wage growth continued to cool in December, even as the labor market remained strong: Average hourly wage grew 3.9% annually last month, up from 4% in November, according to a separate Bureau of Labor Statistics report issued Friday.

This is important because labor is a major input cost for businesses, especially those in service industries such as the leisure and hospitality sectors. Companies can raise prices when wage growth peaks.

Trump’s tariff threat could impact consumer purchasing

Elsewhere, airfares rose 3.9% from November to December, after rising 0.4% the month before. Prices for used cars and trucks rose 1.2% during the month and prices for new vehicles rose 0.5%.

Increases for new and used vehicles “point to a continued surge in demand for replacement vehicles following October’s hurricanes, which will be further boosted by the California wildfires,” Thomas Ryan, North American economist at Capital Economics, wrote on Wednesday in a note.

Car insurance prices rose 0.4% this month and have risen 11% since December 2023.

This is largely due to a lag effect from high vehicle inflation earlier in the pandemic, economists said. Car prices are included in motor vehicle insurance: when prices are high, insurers’ costs for replacing vehicles after a car accident are also much higher.

At least some of the recent increase in car prices may be the result of consumers accelerating their purchases — increasing demand — to avoid potential tariffs imposed by the Trump administration, Seydl said.

Data from a recent University of Michigan Consumer Sentiment Survey “suggests that consumers are increasingly concerned about the likely stagflationary impact of Trump’s policy plans,” Stephen Brown, deputy chief North America economist at Capital Economics, wrote Friday.

“The expectation of tariffs means consumers are judging that it is a better time to buy durable goods,” he wrote.

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