Annual inflation holds steady at 2.7% in December, according to the final report for 2025

US Inflation Rises 2.7% in December

According to the Labor Department's announcement on January 13, consumer prices in the United States increased by 2.7% in December compared to the previous year, matching economists' forecasts.

This final Consumer Price Index (CPI) report for 2025 concludes a year marked by a gradual slowdown in inflation, though price changes varied across sectors. Inflation briefly peaked at 3% in September before easing to 2.7% in November, largely due to smaller increases in costs for gasoline, new cars, and other goods.

Experts view the December data as a more accurate reflection of current inflation trends, following disruptions in earlier reports caused by last year's government shutdown.

Between November and December, consumer prices rose by 0.3%.

The main drivers of these price increases were housing and food, which saw monthly gains of 0.4% and 0.7% respectively. Energy costs also edged up by 0.3% in December.

Understanding Core Inflation

Core inflation, which excludes the often volatile prices of food and energy and is closely monitored by the Federal Reserve, held steady at 2.6% in December, unchanged from the previous month.

Consumers Expect Higher Prices Ahead

According to the New York Fed’s December Survey of Consumer Expectations, Americans anticipate inflation to reach 3.4% in the near term and expect greater difficulty managing debt over the next three months.

Economists note that these concerns reflect uneven financial conditions across different income groups. Some households may experience temporary relief in 2026 thanks to potentially larger tax refunds.

Will the Federal Reserve Lower Rates in January?

The December CPI figures will play a key role in the Federal Reserve’s upcoming interest rate decision at the end of January. With inflation at 2.7%, it remains above the Fed’s 2% target.

A recent drop in the unemployment rate from November to December has reduced expectations for another cut to the Fed's benchmark interest rate, according to Mike Skordeles, head of US economics at Truist.

Although policymakers may not reach a unanimous decision, most analysts now expect the Federal Open Market Committee to keep its target interest rate range steady at 3.5% to 3.75%, following three consecutive cuts last year.

Looking Ahead: Fed Leadership and Policy

The January meeting will be the first since news emerged that the Department of Justice is investigating Fed chair Jerome Powell, raising questions about the central bank’s independence.

Wells Fargo economists noted in a January 12 report that while the investigation is unlikely to shift immediate monetary policy, it could make it more challenging for the next Fed Chair to build consensus among the 19 members of the Federal Open Market Committee.

This story is developing and will be updated as new information becomes available.