WASHINGTON – Consumer prices climbed more sharply than anticipated in December, with early indicators suggesting inflation may continue accelerating into January. This development makes it less likely that the Federal Reserve will reduce interest rates before the summer months.
According to Friday’s report from the Commerce Department’s Bureau of Economic Analysis, the core personal consumption expenditures price index – which strips out volatile food and energy costs – jumped 0.4% in December following November’s unchanged 0.2% increase. Financial analysts surveyed by Reuters had predicted a smaller 0.3% rise. Over the full year ending in December, core PCE inflation reached 3.0%, up from November’s 2.8% rate.
This metric serves as a key benchmark for the Federal Reserve as it works toward its 2% inflation goal. The figures were part of Friday’s preliminary fourth-quarter economic growth report.
While last week’s Consumer Price Index data from the Bureau of Labor Statistics showed modest January increases, economists noted persistent challenges in services sector pricing. A particularly notable spike occurred in legal services during January.
Barclays economist Pooja Sriram explained the impact: “This category, which the BLS does not publish, but can be backed out, registered a 12.0% month-on-month increase in January, which alone is worth about 10 basis points on core PCE inflation.” However, she cautioned, “That said, this tends to be a very volatile category, with very little forward-looking inference.”
Economic forecasters predict core PCE inflation could climb as high as 0.4% monthly for January, potentially pushing the annual rate to 3.1%.
These projections may shift following next Friday’s January Producer Price Index release. January’s PCE inflation figures are scheduled for March 13, with reporting timelines affected by last year’s government shutdown delays.
The broader PCE price index rose 0.4% in December, doubling November’s 0.2% gain. Annual PCE inflation increased to 2.9% from November’s 2.8%.
Government data also showed consumer spending – representing over two-thirds of all economic activity – grew 0.4% in December, matching November’s pace. After accounting for inflation, consumer spending managed just a 0.1% gain, indicating modest momentum entering the first quarter.
