U.S. Consumer Price Index (December 2024)

Small signs of progress in core inflation in December 

• As markets expected, the Consumer Price Index (CPI) rose 0.4% month-on-month (m/m) in December, after rising 0.3% m/m in November. On a twelve-month basis, CPI ticked up to 2.9% (from 2.7% in November). 
• Over 40% of the headline inflation increase was due to a 2.6% m/m increase in energy prices. Even with that big increase in December, energy prices remain 0.5% below their year ago levels. 
• Core CPI was slightly softer than expected in December. Excluding food and energy, CPI rose 0.2% m/m after four consecutive 0.3% m/m gains. The twelve-month change edged down a tick to 3.2%.
• Core goods prices rose a more modest 0.1% m/m, after a 0.3% gain in November. Prices for new and used vehicles are still exerting upward pressure, but to a lesser extent than in November.
• Core services were up 0.3% m/m, matching November's pace. On a year-ago basis, services prices were up 4.4%, down two tenths from the prior month. Shelter prices rose 0.3% m/m in December, with matching 0.3% increases for both rent and owners' equivalent rent. Shelter inflation is 4.6% on a year-on-year basis, continuing to make steady downward progress from its 2023 highs. 

Key Implications

• December's CPI report contained a little bit of good news on core inflation. After a few months of hotter readings, core prices posted a softer-than-expected gain. Fed members have indicated a desire for a more gradual pace of interest rate cuts this year, and we still think they will take a pause in January. Last Friday's healthy payrolls report provided little reason for the Fed to cut rates quickly. But we expect that a March cut remains on the table, with today's CPI providing reassurance that inflation data surprises are not all in one direction.
• One challenge for inflation watchers is that the CPI is not the Fed's preferred inflation measure. That is the core PCE deflator, which did not follow the CPI's lead in November. The 3-month annualized change remained more benign at 2.5%, and still points to downward momentum on the year-on-year measure. The Fed will not get this number before their Jan. 29th decision date. Next week will also bring a deluge of policy shifts from the incoming Trump administration, giving the Fed plenty to think about as it heads into its deliberations.  

Disclaimer

This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.