The US economy saw inflation push higher for a third straight month, reaching its highest level since July. Elevated inflationary pressures continue to persist in the US economy. However, the news wasn’t all bad with data showing core inflationary pressures softened, suggesting that the US Federal Reserve Board (Fed) could lower interest rates again in 2025.

• The annual inflation rate in the US was 2.9% in December, matching economists’ expectations, based on a Bloomberg survey. Core inflation slowed to 3.2% in December from 3.3% in November, also matching expectations.
• Prices for energy and new vehicles declined at a slower pace in December. Prices accelerated for food while moderating for shelter.
• On a monthly basis, consumer prices rose by 0.4% in December, the largest increase since March. Core prices rose by 0.2% over the month, which was the slowest pace in five months.
• Headline inflation has moved higher, reinforcing the Fed’s belief that there are still upside risks to inflation. In response, the Fed lowered its expectations for rate cuts this year to two at its December meeting.

The slowdown in core inflationary pressures was encouraging news, which could nudge the Fed to lower interest rates again. However, there is concern that elevated pressures could persist in response to solid economic activity and the implementation of extensive tariffs. The Fed holds its next interest-rate announcement on January 29, where it is currently expected to hold steady at 4.25%–4.50%.

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