- December core CPI rose 0.2%, coming in below expectations and signaling cooling inflation.
- Annual core inflation held at a four-year low of 2.6%, while headline CPI remained unchanged.
- The data may support a Fed pause on rate cuts as markets react cautiously.
US inflation continued to cool toward the end of 2025, with new data showing price pressures easing more than expected. The Bureau of Labor Statistics reported Tuesday that core CPI rose just 0.2% in December, falling short of economists’ forecasts. On a yearly basis, core inflation climbed 2.6%, matching a four-year low and reinforcing the view that inflation is steadily moderating rather than reaccelerating.
Headline Inflation Holds Steady
Including food and energy, consumer prices increased 0.3% on the month, leaving the year-over-year rate unchanged at 2.7% compared to November. Energy costs ticked higher, largely due to rising natural gas prices, while food prices also increased despite a notable decline in egg prices. Shelter remained the biggest contributor to inflation overall, continuing a trend policymakers have been watching closely for signs of sustained cooling.
Data Distortions Still Linger
Economists noted that November’s CPI data may have been distorted by the unusually long government shutdown, which delayed the collection of October prices. That disruption forced assumptions around housing costs and may have skewed comparisons. Holiday-related discounts could have added further noise to the data, making December’s softer reading more meaningful as those effects fade.
What This Means for the Federal Reserve
The cooler-than-expected inflation print is likely to give the Federal Reserve more confidence to pause additional rate cuts, at least in the near term. Analysts say underlying inflation trends appear stable, reducing the urgency for further monetary stimulus. That said, the Fed is still expected to monitor tariff-related pressures and labor market conditions before making any longer-term policy shifts.
Markets React, Crypto Shrugs
Following the release, equity futures moved higher while Treasury yields slipped, reflecting optimism around easing inflation. Bitcoin, however, showed little reaction, trading sideways around the $92,000 level. The muted crypto response suggests markets may already be pricing in a slower inflation environment, at least for now.
