US Inflation Aligns with Expectations as Core Prices Ease

US consumer prices rose in line with expectations in December, while an underlying measure was slower than anticipated. This closely-watched gauge of inflation could influence the Federal Reserve’s interest rate policy plans in the coming months.

The headline consumer price index (CPI) increased by 0.4% in December, slightly higher than the 0.3% rise recorded in November, according to the Bureau of Labor Statistics. On an annual basis, the CPI climbed by 2.9%, surpassing the previous reading of 2.7%.

Meanwhile, the core CPI, which excludes volatile items such as food and energy, edged up by 0.2% month-over-month and 3.2% year-over-year. These figures came in lower than economists’ forecasts, which had anticipated numbers matching November’s pace of 0.3% and 3.3%, respectively.

The report comes amid persistent concerns about inflation, especially after last week’s robust employment data. President-elect Donald Trump’s pledge to impose strict tariffs on both allies and adversaries has also heightened fears of lingering price pressures.

In response, US government bond yields reached multi-month highs recently, reducing the appeal of stocks as investors adjusted their expectations for further Federal Reserve rate reductions in 2025. The central bank had already cut borrowing costs by a full percentage point in 2024.

However, following the latest data, traders are now pricing in a potential Fed rate reduction as early as July, moving up prior expectations for a cut in September, according to Bloomberg News.

US stock futures reacted positively, while benchmark 10-year Treasury yields slipped. Yields typically move inversely to bond prices, suggesting renewed optimism among investors.

Despite this, the analysts cautioned that uncertainty around Trump’s trade policies and potential fiscal imbalances in the US remain key macroeconomic risks.

As investors navigate these mixed signals, the debate continues on how inflation trends and Federal Reserve policy will shape the outlook for stocks and bonds.