The latest report from the Labor Department reveals that inflation pressures are on the rise again, with the Consumer Price Index (CPI) registering a 0.3% increase in December. This marks a 3.4% year-over-year increase, compared to the 3.1% reported in November.
Core CPI, which excludes energy and food costs, also rose by 0.3% in December, matching the previous month's figure. Over the year, it increased by 3.9%, down slightly from November's 4%.
The increase in inflation comes as energy and shelter prices saw a significant uptick, contributing to the overall rise in CPI. The energy index increased by 0.4% in December, with electricity and gasoline prices offsetting a decrease in natural gas prices. The shelter index continued its upward trend at 0.4%, accounting for over half of the monthly all-items increase.
First American Economist Ksenia Potapov said shelter inflation lags observed prices by approximately six-to-12 months, "so rent declines on new leases are slow to show up in the inflation index. However, those rent declines will increasingly drag down overall inflation throughout 2024.”
But it's nothing to worry about.
She said zooming out on monthly fluctuations “inflation is continuing to moderate and that we are on the right track, so there's not much for the Federal Reserve to do other than wait patiently.”
Additionally, the food index saw a 0.2% increase in December, following a similar uptick in November. The index for food at home rose by 0.1% over the month, while the index for food away from home increased by 0.3%.
Despite these developments, with inflation approaching the target range, the composition of inflation is expected to be of lesser concern to Federal Reserve participants.
The report also highlighted notable changes in various categories, including a 1.5% increase in motor vehicle insurance, a 0.5% rise in used cars and trucks prices, and a 0.6% increase in medical care costs.
The overall CPI's 3.4% rise over the past 12 months indicates an increase in the cost of living for many Americans, driven in part by rising shelter and energy expenses.
