December CPI Forecasts Predict Stalled Progress on Inflation

Key Takeaways from December CPI Forecasts

• The December CPI report, due Wednesday, is predicted to show another month of sticky inflation.
• Gas, food, vehicle, and shelter costs are among the areas believed to have kept the CPI elevated.
• Inflation remains above the Fed’s target, and it’s widely believed that a rate cut is off the table for January, if not longer.

Forecasts for the December Consumer Price Index report show another month of inflation remaining stubbornly above the Federal Reserve’s target. After significant declines in 2023 and most of 2024, progress on slowing inflation has stalled.

Economists predict that the Consumer Price Index rose 0.3% on a monthly basis in December, according to FactSet’s consensus estimates. That would mean the annual inflation rate rose slightly to 2.8% from 2.7% in November. Economists expect the core measure of inflation (which excludes volatile food and energy prices) to rise 0.2% in December, which would keep the annual rate steady at 3.3%.

While economists don’t expect inflation to flare up again in 2025, many say the last mile in getting it down to the Fed’s goal will be difficult. The central bank targets inflation averaging 2% over the long run, as measured by the Personal Consumption Expenditures Index. That means the Fed will likely pause its interest rate cuts in the coming months.

“Investors should not count on further significant slowing in inflation,” says Steven Wieting, chief economist and investment strategist at Citi Wealth. Still, he forecasts that inflation will on balance move lower during 2025. “While there has been a tendency for prices to be increased discretely at the start of the year, threatening larger gains in the first quarter, we would expect inflation measures to make modest progress in slowing in the first half of 2025, particularly given the lags in shelter costs,” he says. That would get inflation down to 2%, but he notes, “This is a rate that is above [what was seen in] the 10 years prior to the pandemic.”

December CPI Report Highlights

• CPI report release date and time: Wednesday, Jan. 15, at 8:30 a.m. EST
• The CPI is forecast to rise 0.3% in December after rising by the same amount in November.
• Core CPI is forecast to rise 0.2% in December after rising 0.3% in November.
• The CPI year over year is forecast to rise 2.8% in December after rising 2.7% in November.
• Core CPI year over year is forecast to rise 3.3% in December after rising by the same amount in November.

Gas and Food Prices to Fuel December CPI Rise

For December, Nationwide chief economist Kathy Bostjancic estimates a 0.3% increase in headline CPI and a moderate 0.2% increase in core CPI, in line with the consensus. “Key factors driving inflation will be higher food prices stemming from an increase in egg prices due to the avian flu, along with a seasonally adjusted increase in gasoline prices,” she says.

On a year-over-year basis, Bostjancic estimates that the headline rate will range from 2.7% to 2.9%, while core CPI will remain sticky and elevated at 3.3%. “Core CPI measure should benefit from an easing in the pace of increases for residential rents and reversal of increases in new and used cars and apparel prices that were recorded in November,” she explains. She says Nationwide anticipates these reversals due to heavy discounting during the December holidays.

Wieting notes that shelter costs have been the largest contributor to overall inflation: “We believe housing shortages will mean many consumers will struggle with shelter costs looking forward.” However, he notes that the CPI data should continue to show gradual deceleration from the roughly 5% pace of 2024, representing nearly 40% of core CPI.

At Bank of America, economists expect a deceleration in core goods inflation after a surprise in vehicle prices from November. Their forecast is 0.3% core CPI growth, 0.1% higher than the consensus. Meanwhile, UBS economists call for a 0.4% rise in the CPI, the largest monthly increase in nine months. They also forecast notable increases in gas, vehicle, and rent costs.

Will the Fed Cut Rates in January?

Wednesday’s CPI release will be the last piece of major economic data the Fed receives before its next policy-setting meeting on Jan. 26 and 27. As of Monday, markets see a roughly 97% chance that the central bank holds rate steady, according to the CME FedWatch Tool. That would leave the federal-funds rate target range at 4.25%-4.50%.

Because of the current inflation backdrop, “coupled with a strong labor market report for December—which like November benefitted from a recovery from hurricane impact—the Fed will refrain from cutting interest rates again this month,” Wieting says.

Bostjancic thinks the Fed could be sidelined for the first half of the year: “In our baseline, we have two rate cuts, one in the first quarter and one in the fourth, but for the first half of the year, the Fed is likely to hold policy rates steady.”