Inflation Edges Up, But Experts See a Downward Trend Ahead
The latest consumer price index (CPI) report reveals a 2.9% annual inflation rate in December 2024, up from 2.7% in November. While this increase may seem concerning, economists believe inflation will continue to decline in 2025, barring any policy changes from the incoming administration.
The Impact of Energy and Food Prices
Higher energy and food prices drove the inflation increase, with gasoline prices jumping 4.4% from November to December. However, this rise may not be reflected at the pump, as average prices actually fell by two cents last month. Egg prices, affected by the avian influenza outbreak, surged 3.2% during the same period.
Shelter Costs Provide a Silver Lining
On a more positive note, the annual inflation rate for housing dropped to 4.6% in December, the lowest since January 2022. As the largest component of the CPI, this decline has a significant impact on inflation’s trajectory.
Core CPI Offers a More Accurate Picture
Economists prefer to focus on the core CPI, which excludes volatile food and energy prices. Here, the picture is more encouraging, with a monthly rate of 0.2% in December and an annual rate of 3.2%. This suggests that underlying inflationary dynamics are slowing.
Wage Growth Cools, But Labor Market Remains Strong
Average hourly earnings grew at a 3.9% annual rate in December, down from 4% in November. This cooling wage growth is important, as it reduces the likelihood of businesses raising prices.
Other Notable Trends
Airline fares rose 3.9% from November to December, while used car and truck prices jumped 1.2% during the month. Car insurance prices increased by 0.4%, largely due to a lag effect from high vehicle inflation earlier in the pandemic.
The Role of Policy in Inflation’s Trajectory
Economists caution that the incoming administration’s policies, such as tariffs and tax cuts, could stall or reverse the downward trend in inflation. The key wildcard in inflation’s trajectory is policy, and experts will be closely watching the administration’s moves in the coming months.
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