Consumer prices in the United States ticked up less than expected in December 2025, with core inflation—the measure that strips out food and energy—rising at a 2.6% annual rate. This came in below forecasts from economists, who had predicted a 2.7% increase, according to data from the Bureau of Labor Statistics released this week. The report covers the final month of a year marked by steady price growth amid tariff policies and Federal Reserve actions.
Background
Inflation has been a steady presence in the US economy since the sharp spike during the pandemic years. Back in June 2022, the Consumer Price Index hit a peak of 9.1%, driven by supply chain issues, high energy costs, and strong demand. Since then, prices have come down but stayed above the Federal Reserve's 2% target.
In 2025, inflation held at or below 3% for the full year. November's data showed the overall CPI up 2.7% over the prior 12 months, with core at 2.6%. That set the stage for December, where economists watched closely for signs of change.
Tariff announcements from the Trump administration earlier in the year raised concerns. Many thought these would push prices higher, as imports from China and other countries faced new duties. But the impact stayed limited. Retailers absorbed some costs instead of passing them all to buyers. Food prices rose, but not as sharply as feared. Energy prices also climbed, yet the broader trend pointed to moderation.
The Federal Reserve played a key role. It cut interest rates three times late in 2025 to support a slowing job market. Chair Jerome Powell noted that labor market risks outweighed inflation worries at the time. The next meeting comes January 27-28, where fresh data like this could shape decisions.
Households felt the pinch all year. Even with slower inflation, prices kept rising. Saving for homes or retirement stayed tough for many families. Rent and shelter costs, a big part of the CPI basket, continued to climb.
Key Details
The core CPI, which focuses on underlying trends by excluding volatile food and energy, rose 2.6% from December 2024. This matched November's core rate but fell short of the 2.7% economists expected.
Overall CPI and Components
The headline CPI, including all items, landed at 2.7% for the 12 months ending December, matching November and in line with forecasts. Food prices increased 2.6% over the year. Food at home rose 1.9%, with meats, poultry, fish, and eggs up 4.7%. Dairy products dipped 1.6%, providing some relief.
Energy costs went up 4.2% annually through November, with similar trends into December. Shelter, the largest CPI component, increased 3.0%. Household furnishings jumped 4.6%, while used cars and trucks rose 3.6%.
Month-to-month, the all-items index rose 0.3% in November, with core up 0.2%. December followed a similar pattern, showing steady but not accelerating pressure.
Apparel prices edged up 1.9%, and medical care 2.9%. Recreation increased 1.8%. These shifts reflect a broad basket of goods and services that urban consumers buy daily.
"Inflation remains a challenge, with core PCE inflation holding above the Federal Reserve's 2% target for 55 months," said Seema Shah, chief global strategist at Principal Asset Management.
The CPI-U, for all urban consumers, reached an index level of around 324 by late 2025, up from prior years. The CPI-W for wage earners also rose 2.7%.
What This Means
Lower-than-expected core inflation offers a sign of cooling pressures. It could give the Federal Reserve room to keep easing rates if jobs data weakens further. Markets reacted with modest gains, as investors weigh recession risks against price stability.
For families, the news means prices rose less fast, but totals still climbed. A $100 grocery bill from last year now costs about $102.60 on average for core items. Shelter costs, at 3%, hit budgets hard in many cities.
Businesses face mixed signals. Retailers held back some tariff costs, helping consumers. But higher input prices lingered in areas like meats and furnishings. Manufacturers watched for policy shifts post-January.
The labor market slowdown prompted Fed cuts. Unemployment ticked up late in 2025, prompting action. This CPI print keeps inflation in check, potentially avoiding hikes.
Looking ahead, nowcasts from the Cleveland Fed point to January 2026 CPI at 2.24%, core at 2.45%. PCE measures, the Fed's preferred gauge, sit higher at 2.64% core. Tariffs may build impact if fully implemented.
Consumers plan budgets with caution. Home buying stayed slow amid high shelter costs. Retirement savings grew slower as prices ate gains. Small businesses reported steady sales but thin margins.
Economists track shelter most closely. It drove much of 2025's rise. If rents ease, overall inflation could drop faster. Energy volatility remains a wildcard with global tensions.
This data caps a resilient year. Growth held up despite pressures. The 2.6% core rate beats earlier highs, yet stays above target. Policymakers balance jobs and prices in coming months.
