December Inflation Data Reveals Cooling Trend as Price Growth Slows Unexpectedly

2026-01-13 economy

Washington D.C., Tuesday, 13 January 2026.
Core inflation hit a four-year low of 2.6% in December, missing forecasts. This cooling trend offers the Federal Reserve a confident signal of stability despite recent government shutdown distortions.

Analyzing the Cooling Inflationary Landscape

Following our previous analysis of the market’s apprehension regarding potentially distorted economic data, the Bureau of Labor Statistics (BLS) released figures on Tuesday that offer a clearer picture of the U.S. economy’s trajectory. The report indicates that core consumer prices—excluding the volatile food and energy sectors—rose at an annual rate of 2.6% in December 2025 [1][2]. This figure represents a four-year low and arrived slightly below the market consensus of 2.7% [2][3]. While headline inflation ticked up to 2.7% year-over-year, matching November’s pace and economist forecasts [8], the softer-than-expected core reading suggests that underlying price pressures are stabilizing rather than resurging.

Unwinding Shutdown Distortions

The December data is particularly significant as it marks the unwinding of statistical distortions caused by the recent 43-day government shutdown [2][8]. Data collection issues in October had forced the BLS to utilize carry-forward methods for the November report, creating artificial lows that many analysts feared would result in a sharp snapback in December [8]. However, the anticipated rebound was contained. On a monthly basis, the core Consumer Price Index (CPI) increased by a modest 0.2%, defying expectations for a stronger rebound [2][6]. This controlled rise provides the Federal Reserve with a more confident signal that the disinflationary trend remains intact despite administrative interruptions [2].

Diverging Trends: Goods vs. Services

A closer examination of the report reveals a distinct bifurcation between goods and services. While prices for goods were largely flat, the service sector continued to exert upward pressure [6]. Notably, the recreation index surged by 1.2% in December, marking its largest monthly gain since 1993 [1]. Conversely, the market for vehicles showed weakness; used car and truck prices declined by 1.1% for the month [1][6], and new vehicle prices remained flat [4]. This divergence highlights that while supply chain-related inflation has largely dissipated, service-oriented sectors driven by wage growth and consumer demand remain sticky.

Federal Reserve Outlook and Political Tensions

This inflation report arrives at a politically and economically sensitive moment. The Federal Reserve is scheduled to meet on January 27-28, where it is widely expected to maintain the benchmark interest rate in the 3.50%-3.75% range [8]. Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, noted that while inflation isn’t reheating, it remains above the Fed’s 2% target, arguing that the report “doesn’t give the Fed what it needs to cut interest rates later this month” [1][4]. The central bank’s decision-making is further complicated by external pressures; reports indicate escalating tensions between Fed Chair Jerome Powell and the Trump administration, with most economists now ruling out rate cuts before Powell’s term concludes in May [8].

Sources

Inflation Consumer Price Index