WASHINGTON (AP) — A key inflation gauge accelerated in December to its fastest pace in nearly a year, showing prices were still rising faster than most Americans expected and faster than the Federal Reserve’s 2% annual target.
Prices rose 0.4% in December, up from 0.2% in November, the Commerce Department said in a report on Friday that was delayed by the six-week government shutdown last fall. The monthly increase was the highest since February last year. Compared with the same period last year, the inflation rate increased by 2.9% in December, higher than the 2.8% in November. This is the largest annual increase since March 2024.
Core prices, which exclude the volatile food and energy categories, also rose 0.4% from the previous month in December, up from 0.2% in November. This is also the highest level since last February. Core prices rose 3% year-on-year in December, up from a 2.8% gain in November.
Inflation remains high but is down from a peak of nearly 7% in 2022, the data shows. With many prices still rising faster than before the pandemic, the report points to a key reason why many Americans remain dissatisfied with the economy, even as unemployment remains low and growth is solid.
The report covers the so-called Personal Consumption Expenditures (PCE) price index, which the Fed prefers to the better-known Consumer Price Index. The government said last week that CPI cooled significantly in January.
But the reason the PCE index is higher than the Consumer Price Index is that it weighs much less in some areas where price growth has cooled sharply, such as apartment rents and car prices.
Friday’s report also showed that consumer spending maintained strong growth in December, rising 0.4% month-on-month, the same as in November.
Prices for furniture, clothing and groceries increased in December. Natural gas prices fell, but electricity costs rose. In December alone, natural gas costs soared 3.7% month-on-month.
The Federal Reserve’s rate-setting committee met in late January and agreed to keep short-term interest rates unchanged at around 3.6%, despite President Donald Trump’s repeated calls for lower rates. Most officials wanted to see inflation move closer to the Fed’s target before supporting further rate cuts, according to meeting minutes released Wednesday.