Harriet Torrey

So this is still above the Fed's target, which is 2% year over year, but it shows that inflation is not accelerating.

And in fact, inflation is down from the beginning of last year.

Right now, the December reading isn't likely to change the Fed's wait-and-see posture at its meeting in January, because officials probably want to see more evidence that inflation is levelling off before it cuts rates further.

And then in 2026, tax cuts from the One Big Beautiful Bill Act are likely to put a bit more money in the pockets of consumers.

So economists say that could be a driver for inflation.

So the Fed probably wants to see some more evidence either that job market conditions are weakening or that price pressures are fading.

One thing we did see in this report that was somewhat worrying is that some key household line items saw some big price increases in December.

So for instance, food went up by 0.7% from the prior month, and that was the largest month-over-month increase since October 2022.

And we also saw increases in things like rent, some transportation costs.

Those are big items that people have to spend on every month, and those price increases are a bit of a strain for consumers.