On January 2, 2025, a shopper is on the prowl for eggs amidst the nearly barren shelves at a grocery store in Lawndale, California. This image captured by Patrick T. Fallon of AFP/Getty Images paints a vivid picture of the current state of affairs.
The Bureau of Labor Statistics recently released some data, and it’s raising a few eyebrows. Inflation saw a little uptick in December, thanks to rising energy and food costs. Specifically, the consumer price index (CPI), a standard measure of inflation, showed a 2.9% rise compared to the same month the previous year. Just for context, this was up from a 2.7% rate in November and a low of 2.4% back in September.
While this climb might seem unsettling, economists are suggesting we shouldn’t worry too much. They predict inflation will likely head back down in 2025. However, they do warn that if President-elect Donald Trump’s administration decides to implement tariffs and tax cuts, it could complicate things, adding fuel to the inflationary fire.
Joe Seydl, a senior markets economist at J.P. Morgan Private Bank, pointed out that policy is a major factor in this equation. The CPI measures how prices change for a variety of everyday goods and services, from your favorite coffee to concert tickets. Though inflation has come down quite a bit from its pandemic high of 9.1% in June 2022, it’s still not quite where the Federal Reserve wants it. Their goal is an annual rate of 2% over a prolonged period. They also use a different measure called the personal consumption expenditures price index (PCE), which usually runs a little lower than CPI.
“We’re getting there,” Seydl noted optimistically. “By the year’s end, we should see those inflation rates fitting the targets.”
As for December’s details, there are some interesting points of concern. Grocery prices climbed by 0.3% from the previous month. Notably, eggs played a significant role in this rise. Seydl points out that a widespread bird flu outbreak in the U.S. has severely impacted egg pricing, eliminating millions of egg-laying hens.
Egg prices spiked 3.2% from November to December, marking the highest increase for any grocery item. They’ve soared 37% since December 2023.
Gasoline prices were also on the rise, with a 4.4% increase recorded by the CPI from November to December. Oddly enough, consumers didn’t really feel this at the pump; in fact, prices at gas stations dropped a couple of cents during December, thanks to seasonal adjustments made by federal statisticians.
However, there is a silver lining—shelter inflation is on a downward slope. Housing inflation in December was reported at 4.6%, the lowest since January 2022. This sector is crucial since it’s the biggest component of the CPI.
Economists often focus on “core” CPI, which excludes volatile food and energy prices to try to gauge a clearer picture of inflation dynamics. Fortunately, core inflation showed improvements too, with a monthly decrease to 0.2% compared to recent months.
Mark Zandi, chief economist at Moody’s, is feeling hopeful. “It’s heartening to see inflation slow down progressively,” he said. Though the difference between current rates and the Fed’s target mainly lies in housing costs, which are now slowing down.
Zandi predicts inflation could hit target levels by spring or summer, assuming policy changes don’t throw a wrench in the works. As for wage growth, it eased off a bit in December, which is noteworthy. This is particularly crucial since high labor costs can pressure businesses to increase prices.
Elsewhere, airline fares saw a noticeable jump, as did prices for new and used vehicles. Thomas Ryan from Capital Economics suggests this is partly due to increased demand following recent hurricanes and wildfires, which have driven up the need for replacement vehicles.
Additionally, vehicle insurance costs have climbed, reflecting the higher car prices earlier in the pandemic. Some of this recent spike in car prices might be consumers trying to get ahead of potential tariffs from Trump’s administration; speeding up purchases tends to boost demand.
Stephen Brown at Capital Economics commented that consumer sentiment shows a rising concern over Trump’s potential policies causing economic stagnation. With tariffs potentially on the horizon, consumers see now as a prime time to purchase durable goods.
