December inflation flat as Fed eyes interest rate decision

Inflation remained flat in December, according to data released Tuesday by the U.S. Bureau of Labor Statistics, as the Federal Reserve prepares to meet later this month to discuss a future path for interest rates.

On a monthly basis, the Consumer Price Index was up 0.3% after seasonal adjustment in December. Year-over-year the all-items index was up 2.7%, the same as it was in November.

Shelter was the main contributor to the all-items index’s monthly increase, rising 0.4% from a month prior. Other major contributors included the food index, which rose 0.7% and the energy index, which jumped 0.3%.

As a result of these increases, the all items less food and energy index rose just 0.2% on a monthly basis in December. Increases in the indexes for recreation, airline fares, medical care, apparel, personal care and education contributed to this jump. In contrast, the indexes for communication, used cars and trucks, and household furnishings and operations all fell on a monthly basis.

On an annual basis, as it did on a monthly basis, the all items less food and energy index posted a smaller increase than the all item index, rising just 2.6% over the last 12 months. During the same time frame, the energy index rose 2.3%, while the food index jumped 3.1%.

Annually, the shelter index was up 3.2%, while the rent of primary residence index rose 2.9% annually and the owner’s equivalent rent of residences index jumped 3.4% year-over-year in December.

“The December print marks a slight moderation in price increases as 2025 came to a close,”Jake Krimmel, a senior economist at Realtor.com, said in a statement. “Importantly, there was no rebound from November’s downside surprise report, whose data collection was impacted by the government shutdown.”

Although the overall inflation data for December was softer than may have been expected, economists don’t believe it will change their expectation that the Fed will hold rates steady at their meeting later this month. But Sam Williamson, First American’s senior economist, said the December data does keep a potential March rate cut in play, especially if upcoming inflation and labor market data continue to cool, which could potentially mean lower mortgage rates for consumers.

“With the 2026 home-buying season just around the corner, the bigger takeaway for home buyers from today’s report is what it could mean for mortgage rates heading into the spring,” Williamson said in a statement. “With the government shutdown still complicating month-to-month comparisons, policymakers are likely to put more weight on the next few reports to confirm the direction of inflation before changing course.”

But while some affordability relief could be in store for consumers this spring, economists note that despite improving inflation data, economist uncertainty is leading many potential homebuyers to pause.

“The consumer sector continues to tread water. Sentiment remains significantly lower than last year, as American families are extremely concerned about their household financial outlook. The New York Federal Reserve recently reported that a record number of families feel job insecure and doubt they will find work if they lose their jobs,” ​​Selma Hepp, chief economist at Cotality, said in a statement. “Although inflation readings remain unpredictable and erratic, it is crucial to recognize that material and component costs for construction and home repair services continue to rise. This persistent inflation makes it difficult for both existing and new homeowners to achieve improved affordability.”