CPI steady as food and transportation prices notably rise
Consumer prices rose 0.3% in December, keeping headline CPI at 2.7% year-over-year. Core prices rose 0.2% keeping core CPI at 2.6%.
Core goods prices were flat overall in December, but tariff sensitive goods prices rose 0.3% driven by categories like motor vehicle parts and equipment. Energy inflation was relatively modest at 0.3%, outside of natural gas prices, which rose by 4.4%. Food prices rose 0.7%, increasing in categories like steak, ice cream and imported goods like citrus fruits and coffee.
Figure 1: CPI trends sideways in December1
Within the “sticky” core services categories, shelter (the largest component of CPI) accelerated to 3.2% year-over-year. Excluding shelter, CPI was 2.4%. “Supercore” categories (which exclude shelter as well as food and energy) trended sideways overall, albeit there were rebounds in airline fares and public transport prices.
Figure 2: “Stubborn” core services categories remained relatively stable1
Will affordability concerns become a theme in 2026?
Although we continue to expect to see disinflation in core services, CPI may see some upward pressure over the near term. We expect tariff inflation to peak over the coming months. Further, the reversal of government shutdown related distortions may create upward pressure. The shelter component, for example, may see a one-time rise in April related to its calculation methodology.
As such, given loosening conditions in the labor market, it is possible that inflation and wage growth could increasingly converge (Figure 3), which could make affordability a politically charged topic in 2026 ahead of the mid-terms.
Figure 3: Affordability could become a hot topic for consumers in 20262
