Inflation Progress Slows Despite Strong Economy

US inflation eased slightly at the close of 2024, reflecting the Federal Reserve’s cautious stance on monetary policy. Core inflation, measured by the consumer price index (CPI) excluding food and energy, likely rose 0.2% in December. This marks a moderation from prior months of 0.3% gains. The annual core CPI increase of 3.3% underscores persistent inflationary pressures despite cooling momentum.

Labor Market Resilience Complicates Inflation Dynamics

December saw robust labor market activity, with over 250,000 jobs added and a surprising dip in unemployment. This strength fuels consumer demand, which can keep inflation elevated. University of Michigan data reveals that 22% of consumers expect higher prices ahead, leading them to prioritize big-ticket purchases.

Federal Reserve Maintains Cautious Rate Cut Strategy

Economists at leading banks revised their forecasts for Federal Reserve rate cuts, aligning with signals from policymakers. The Federal Open Market Committee’s (FOMC) December communications emphasized a careful approach, citing stalled progress in disinflation efforts. Core CPI data reinforces the need for restrained monetary adjustments.

Broader Economic Trends Shape Inflation Outlook

Economic growth has been supported by elevated household net worth, increased auto spending, and wage growth surpassing inflation. December’s retail sales data, expected later this week, will provide further insight into consumer spending trends. Meanwhile, manufacturing output continues to stabilize, showing a modest 0.2% gain for two consecutive months.

Global Inflation Developments Add Complexity

Inflation’s trends across the globe influence US economic policy. In the UK, inflation’s accelerated to 2.7%, while in Europe, industrial production data signals continued challenges. Asia’s trade and GDP figures reveal resilience, though political uncertainties weigh on markets. In Latin America, Argentina’s inflation’s is projected to slow after peaking at 290%, while Brazil faces pressure from elevated interest rates.

Outlook for 2025 Remains Uncertain

As the Federal Reserve navigates competing pressures, December’s CPI report and upcoming economic data will be critical for shaping policy. With inflation’s proving stubborn and the labor market showing resilience, balancing price stability and economic growth will remain a key challenge in 2025.