Declaring Victory Over Inflation Can Come Back to Bite, Says Martha Gimbel

Martha Gimbel, director of the Yale Budget Lab, said that Trump administration is only making Jerome Powell's job harder when the White House signals the Fed has little runway to address inflation. Gimbel said that the pace of rising costs around key 'emotional issues' like childcare, health insurance and housing has caused people to feel strain, even as the economy is better than previous generations.

Underlying US inflation rose in December by less than expected, a more confident signal of cooling price growth after shutdown-related distortions complicated the previous report.

The core consumer price index, which excludes the often volatile food and energy categories, increased 0.2% from November, according to Bureau of Labor Statistics data out Tuesday. On an annual basis, it advanced 2.6%, matching a four-year low.

The reading is perhaps a more convincing sign that inflation is on a downward path, since a number of caveats in November’s report contributed to a significant pullback in the annual core CPI.

Economists said that data was artificially depressed by the record-long government shutdown because the BLS couldn’t collect prices in October and assumed no increases in key housing metrics. November data were also collected later than usual and could have been affected by holiday discounts.

There was some bounce-back in shelter costs, which were the “largest factor” in the overall monthly advance, BLS said, while apparel prices also climbed. Recreation costs rose by the most ever and airfares jumped. Grocery prices were up the most since August 2022.

Several categories showed price declines, including appliances and used cars and trucks. Vehicle repair costs fell by the most on record. Core goods prices, which exclude food and energy, stagnated last month — also defying expectations for a rebound.

While the shutdown impacts on the data haven’t fully unwound, “the key positive in this report is flat core goods prices, reinforcing the view that tariff pass‑through to consumers has been much milder than anticipated,” Olu Sonola, head of US economic research at Fitch Ratings, said in a note.

Federal Reserve officials are widely expected to hold interest rates steady later this month after three straight cuts to close out 2025. Officials are divided over how much further to lower rates this year, balancing concerns about above-target inflation while also being mindful of softness in the labor market.

The S&P 500 was lower in early trading and Treasuries fluctuated. President Donald Trump continued to berate Fed Chair Jerome Powell for being too late on cutting rates further, posting after the report on social media.

One of the key drivers of inflation in recent years has been housing costs — the largest category within services — though those pressures largely waned throughout 2025. Shelter prices advanced 0.4% in December, the most since August. Excluding shelter, the core CPI only climbed 0.1%.

Key housing metrics, including primary rents and owners’ equivalent rent, rose at a firm pace after the changes recorded from September to November were surprisingly small. Hotel stays also rebounded, rising the most since September 2023.

Another services gauge closely tracked by the Fed, which strips out housing and energy costs, rose 0.3%. On an annual basis, the so-called supercore rose 2.7% in December compared to roughly 4% a year earlier. That improvement should set up the Fed to cut rates further this year, said Chris Low, chief economist at FHN Financial.

While central bankers have stressed the importance of looking at such a metric when assessing the overall inflation trajectory, they compute it based on a separate index.

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