U.S. inflation ended the year on a modestly softer note, offering some reassurance to markets as the Federal Reserve weighs its next policy move. The Consumer Price Index (CPI) rose 0.3% in December, putting the annual inflation rate at 2.7%, in line with economists’ expectations, according to the Bureau of Labor Statistics.
Core inflation — which excludes volatile food and energy prices and is closely watched by the Fed — came in slightly cooler than forecast. Core CPI increased 0.2% for the month and 2.6% year over year, both coming in 0.1 percentage point below expectations. While inflation continues to drift closer to the Fed’s 2% target, it remains elevated enough to keep policymakers cautious.
Shelter costs remained a key source of pressure, rising 0.4% in December and 3.2% over the past year, accounting for more than one-third of the CPI’s overall weight. Food prices also jumped 0.7% for the month, led by higher costs for groceries such as meats, dairy, and coffee, even as egg prices fell sharply from last year’s highs. Energy prices rose modestly, though gasoline prices declined both monthly and annually.
Markets reacted calmly to the report. Stock futures edged higher and Treasury yields fell, as traders maintained expectations that the Fed will hold interest rates steady at its upcoming meeting and delay any further cuts until mid-year.
With inflation cooling but still above target and the labor market holding firm, the latest data reinforces the view that the Fed remains in “wait-and-see” mode as 2026 begins.
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