A grocery store in the Manhattan borough of New York City on Dec. 13, 2025.
Charly Triballeau | Afp | Getty Images
Progress in the fight to throttle back inflation appeared to stall in December amid price pressures from groceries, dining out, utility gas, clothing and other categories of consumer spending.
The consumer price index, a key inflation gauge, rose 2.7% in December from 12 months earlier, the Bureau of Labor Statistics said Tuesday. That was unchanged from the previous month and in line with estimates.
“The bottom line is, I think inflation is still uncomfortably high,” said Mark Zandi, chief economist at Moody’s. “Inflation for staples, necessities, remains elevated.”
Tariffs are pushing up inflation
The Federal Reserve, the U.S. central bank, targets an annual inflation rate that averages roughly 2% over the long term.
Tariffs levied by President Donald Trump have put upward pressure on the inflation rate, Zandi said.
Tariffs are a tax on imports, paid by the U.S.-based importer. Economists have expected that businesses would pass along at least some of that tax to consumers via higher prices.
“I think were it not for the tariffs, we would have been back to target already,” Zandi said. “But tariffs have pushed up inflation a little over half a [percentage] point.”
That said, the pass-through to consumers has been more muted than expected, likely because businesses have chosen to erode their profit margins rather than risk alienating consumers via higher prices, economists said. Companies with inventory imported to the U.S. before tariffs were implemented were also able to sell those products to consumers at typical prices.
The Supreme Court is poised to deliver a ruling in the coming days or weeks that could strike down a legal pathway the Trump administration has leveraged to impose universal tariffs on a broad swath of trading partners.
Even without such a ruling, economists said they expect inflation has peaked and that it will likely throttle back in the second half of 2026.
“Short of any new tariffs coming online, we think the direction of inflation is lower,” said Tom Porcelli, chief economist at Wells Fargo.
Good news for the Federal Reserve
Overall, the headline inflation rate is higher than it appears on paper, Zandi said.
The record-long government shutdown, which ran from Oct. 1 to Nov. 12, prevented federal statisticians from collecting typical inflation data in October. Without that data, the BLS assumed that no price increases had taken place during the month for most categories of goods and services, Zandi said.
Moody’s estimates the annual CPI inflation rate would be around 3% if that data were included, he said.
Ultimately, disinflationary trends largely appear positive under the surface, likely a welcome sign for Federal Reserve policymakers as they navigate whether to ease back on interest rate policy in 2026, economists said.
“We expect officials are happy to remain on extended pause, as they wait and see the impact of their recent string of rate cuts, but with inflation fears fading, officials will feel freer to respond to downside risks to the labor market, should conditions deteriorate,” Michael Pearce, chief US economist at Oxford Economics, wrote in a note Tuesday.
Consumer staples spur affordability concerns
Affordability has emerged as a key financial focus for consumers and a talking point for politicians.
Inflation for certain household necessities increased in December.
For example, food prices — for groceries and at restaurants — each increased 0.7% on a monthly basis, from November to December, according to the CPI report.
For inflation to get back to target, the monthly inflation rate generally needs to be around 0.2%.
Certain categories like coffee and beef have seen high inflation rates over the past year — about 20% and 16%, respectively — due to supply constraints.
Clothing prices were also up about 0.6% on a monthly basis.
However, some increases may appear larger than in reality due to data distortions caused by the government shutdown, according to economists.
“Goods inflation appeared firmer than underlying trends would suggest, largely because holiday discounts were over-represented in November’s CPI report due to how data was gathered during the government shutdown,” Gargi Pal Chaudhuri, chief investment and portfolio strategist for the Americas at BlackRock, wrote in a note Tuesday. “Those deeper-than-normal discounts pulled prices down in November, setting up an artificial jump when prices normalized later in December.”
Utility piped gas service increased 4.4% on the month, and is up 11% for the year. Electricity prices declined by -0.1% for the month but were up about 7% for the year.
On a positive note, housing is likely to act as a counterweight pulling down overall inflation in 2026 and into 2027, Zandi said.
“Rent growth remains very weak,” he said.
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