Inflation speeds up, ends 2024 at 2.9 percent

Inflation picked up speed in December as the U.S. economy showed unexpected signs of strength at the end of 2024.

The consumer price index (CPI) rose 0.4 percent in the final month of 2024 and ended the year up 2.9 percent, according to data released Wednesday by the Labor Department.

Economists expected the annual inflation rate to hit 2.9 percent and prices to rise 0.3 percent on the month, according to consensus estimates.

The new inflation numbers come as the Federal Reserve faces a crossroads with President-elect Trump set to take office Monday.

The Fed ended 2024 with three consecutive rate cuts meant to bring borrowing costs down from two-decade highs. But as the job market rallied and inflation picked up to close out the year, the Fed signaled it would not cut rates as quickly in 2025.

Fed officials are also concerned about the potential for Trump's tariff and immigration agenda to boost prices even further, according to notes from internal meetings released by the central bank.

Market analysts expressed concerns Wednesday about the print and what it means for additional interest rate cuts by the Fed.

Easing inflation in the housing sector, which held steady at a 0.3-percent increase on the month while easing to a 4.6-percent increase on the year, offered little consolation.

“If interest rates are going to come down, inflation needs to come down. And it’s not. The improvement in shelter costs has been slow to materialize and still isn’t anything to write home about,” Greg McBride, chief financial analyst with Bankrate, wrote in a commentary.

Other responses were more muted, though they noted improvements in services inflation, which declined to a 4.4-percent annual increase.

“This print does not move the needle much in terms of the Fed’s calculus on rates,” Fitch chief economist Brian Coulton wrote, “but there is some slightly better news on services inflation.” 

He added that shelter inflation “continues to fall and services excluding shelter is also coming down. It’s very slow progress in getting services inflation down, but progress nevertheless.”

Markets could experience some volatility if they interpret Wednesday's print as unsupportive of a clear narrative on future rate cuts, analysts said.

“Perhaps the key takeaway is that markets are likely to be whipsawed over the next few data releases as investors seek a narrative that they can be comfortable with for more than just a few days at a time,” said Seema Shah, strategist with Principal Asset Management.

The Fed had been predicting four quarter-point rate cuts over the course of 2025 but cut that number in half in the most recent summary of economic projections.

Central bankers also projected lower unemployment this year along with higher gross domestic product (GDP).

Despite the December acceleration in prices, some voices within the Fed have been expressing confidence about easing prices this year.

Fed Governor Christopher Waller told an audience in Paris earlier this month that he thought inflation would continue to make progress toward 2 percent over the medium term.

He cited moderating prices in the six-month core personal consumption expenditures (PCE) price index, which fell to a 2.4-percent annual increase in November.

Gasoline prices were down 3.4 percent on the year. Cakes, cookies, whole milk, fresh whole chickens, ground beef and pork chops are all cheaper than they were last year.

Eggs are 3.2 percent more expensive, fish is 0.8 percent more expensive, and airline fares are 3.9 percent more expensive since last year.

Updated at 9:32 a.m. ET