US CPI December: Headline Steady, Core Softer Than Expected

The December 2025 CPI report was broadly encouraging. Core CPI rose 12 bps less than expected, mainly because core goods inflation rebounded less than anticipated after November’s unusually soft, shutdown-delayed print. Year-over-year core CPI held at 2.6%, improving from 3.1% in August and 3.2% in December 2024, though a shelter-related quirk may be artificially lowering y/y readings by about 0.1pp. The outlook still faces near-term risks from Q1 repricing seasonality and potential tariff pressures.

author: Ahura Chalaki

196

published:Jan 13, 2026 11:33

category:fundamental

The latest U.S. inflation report for December showed headline CPI holding at 0.3% m/m (0.3% expected; 0.3% prior), while headline CPI remained 2.7% y/y (2.7% expected; 2.7% prior). The key surprise was in underlying inflation: core CPI slowed to 0.2% m/m (0.3% expected; 0.2% prior), leaving core CPI at 2.6% y/y (2.7% expected; 2.6% prior). In index terms, CPI (NSA) eased to 324.05 (324.12 prior) while core CPI index rose to 331.86 (331.07 prior). The NSA CPI m/m printed -0.02% (0.25% prior), and the seasonally adjusted CPI index increased to 326.03 (325.03 prior). For markets, the combination of a steady headline rate and a softer-than-expected core reading typically supports the view that disinflation is continuing—potentially limiting upside pressure on yields and keeping the dollar’s reaction more data-dependent on upcoming growth and labor prints.

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Inflation refuses to loosen its grip

Consumer price inflation ended 2025 slightly softer than expected: headline CPI rose 0.31% m/m and core CPI 0.24% m/m. December saw hotter food prices (+0.7% m/m) and modest energy inflation (+0.3% m/m), while over the past year, food inflation is +3.1% and energy commodities are -3.0%. A notable exception is energy services, with electricity (+6.7% y/y) and piped gas (+10.8% y/y) rising quickly—likely supported by ongoing AI-driven demand.

Markets expected some rebound after November’s unusually soft reading (potentially influenced by holiday discounting and BLS sampling timing), especially in core goods, but core goods were flat in December and have averaged just 0.03% over the past two months. The weakness was helped by a larger-than-expected drop in used cars (-1.1%) and flat new car prices, while categories like apparel bounced modestly but less than anticipated.

Core services behaved closer to expectations: OER and primary rents +0.3% m/m, with a sharp rise in airfares (+5.2%) offset by softer prints elsewhere (e.g., vehicle maintenance). Overall, the report is encouraging, though the authors flag shutdown-related data quality issues, shelter measurement quirks, and the possibility that PCE inflation is improving less—estimating core PCE +0.37% m/m and 2.9% y/y in December, with more clarity expected from upcoming PPI data. They also warn that Q1 price resets and tariff risks remain hurdles, but argue the report supports continued progress toward 2% inflation in 2026 and leaves room for the Fed to move rates closer to neutral as consumers appear more price-sensitive and unemployment remains slightly above “full employment” estimates.