US Inflation

Headline & Core Inflation Trends

Today’s CPI report delivered a mixed message: headline and core inflation look broadly consistent with a “2-something” inflation environment, but the details show why many households still feel squeezed—especially on food and shelter. Inflation ticked slightly higher in December, with the Consumer Price Index (CPI) rising 0.3% month over month (m/m). That pushed the year-over-year (y/y) increase to 2.7%, matching November’s print and reinforcing the narrative that disinflation is slowing — but not reversing.

• Core CPI (excluding food and energy) rose 0.2% m/m, bringing the annual rate to 2.6%.
• These steady readings suggest underlying inflation pressures are cooling slowly, but not enough to guarantee rapid progress toward the Fed’s 2% target.

Where Households Feel It Most

Food and shelter remain the biggest sources of “felt” inflation.

• Food: +0.7% m/m, 3.1% y/y
  • Food at home: +0.7%, with broad gains (other food +1.6%, dairy +0.9%, cereals/bakery +0.6%, fruits/veg +0.5%); eggs –8.2%.
  • Food away from home: +0.7% m/m, 4.1% y/y (full service +4.9%, limited service +3.3% y/y).
• Shelter: +0.4% m/m, 3.2% y/y
  • Rent & owners’ equivalent rent: both +0.3%
  • Lodging away from home: +2.9%

Together, steadily rising grocery, restaurant, and housing costs explain why inflation still feels high, even with headline running under 3%.

Goods, Energy, and Other Core Components

Beyond food and shelter, the data are more balanced.

• Core services & other: recreation +1.2% (record monthly gain), airline fares +5.2%, medical care +0.4% (hospital services +1.0%), apparel +0.6%, personal care +0.4%. Services remain the sticky side of inflation.
• Goods disinflation: used cars –1.1%, household furnishings –0.5%, communication –1.9%, new vehicles flat. Earlier goods-price spikes continue to unwind.
• Energy: +0.3% m/m, 2.3% y/y; natural gas and electricity are higher over the year, but gasoline is –3.4% y/y. Net result: is that energy is no longer a major driver in either direction.

What It Means for the Fed and for Households

For the Fed, this report argues for steady, patient policy: inflation is not flaring back up, but core services and shelter are still too firm to justify aggressive cuts.

For households, the story is simpler: rent, utilities, food, and key services are still rising faster than feels comfortable, while relief is mostly in categories like used cars and some goods that matter less day to day. Inflation is no longer a crisis, but it hasn’t faded enough yet that people feel decisively “out of the woods.”