The report released by the US Bureau of Labor Statistics on Tuesday, January 13, revealed that the core Consumer Price Index (CPI) rose by 2.6% year-on-year in December 2025, lower than expected. This has strengthened the market’s expectation of a slowdown in inflation. The release of this report comes at a time when the Federal Reserve is considering whether to cut interest rates.
Excluding the more volatile food and energy sectors, the core CPI increased by 0.2% month-on-month in December and by 2.6% year-on-year. Both of these figures were lower than the 0.3% and 2.8% expected by economists surveyed by Dow Jones.
The overall CPI, including food and energy, increased by 0.3% month-on-month in December and by 2.7% year-on-year, in line with economists’ predictions.
While Federal Reserve officials monitor both CPI and core CPI, they consider core CPI to be a better reflection of long-term inflation trends.
Following the release of the report, stock index futures rose while US Treasury bond yields fell.
Looking at specific indicators, food prices rose by 0.7% month-on-month in December and by 3.1% year-on-year. Within the food index, fruit and vegetable prices increased by 0.5% from November; dairy and related products rose by 0.9%; however, meat, poultry, fish, and egg prices decreased by 0.2% in November, with egg prices dropping by 8.2%.
Energy prices rose by 0.3% month-on-month in December and by 2.4% year-on-year; new car prices remained steady from November, up by 0.3% year-on-year; used car prices fell by 1.1% month-on-month but rose by 1.6% year-on-year; transportation service prices rose by 0.5% month-on-month and by 1.5% year-on-year; healthcare service prices increased by 0.4% month-on-month and by 3.5% year-on-year.
Housing costs, which account for about one-third of the CPI weight, rose by 0.4% month-on-month in December and by 3.2% year-on-year.
This report may prompt the Federal Reserve to keep interest rates unchanged in the short term. The Federal Reserve had cut the benchmark interest rate three times in the second half of 2025. Market expectations are that the Federal Reserve will hold steady in the first half of 2026 while assessing the impact of these rate cuts on the overall economic conditions.
According to CNBC, Ellen Zentner, Chief Economist at Morgan Stanley Wealth Management, stated, “We’ve seen this situation before – where inflation hasn’t heated up again, but it’s still above target levels. The transmission effects of tariffs are still limited, but housing affordability has not eased. Today’s inflation report does not provide the signal the Fed needs to cut rates later this month.”
Federal Reserve officials are currently weighing the risks in the labor market against the possibility of ongoing inflation. This report released on Tuesday marks the first comprehensive display of inflation trends by the US government in months. Due to the government shutdown for nearly one and a half months in October of last year, the Department of Labor was unable to collect price data on-site and had to use technical means to address the missing data in the previous inflation report.