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Key takeaways

  • The December 2024 Consumer Price Index (CPI) report offered a welcome reprieve, as Core CPI (excluding food and energy) rose by a milder-than-expected 0.2% month-over-month (MoM) after four consecutive months of 0.3% MoM increases.
  • Headline CPI rose 0.4% MoM in December, in line with expectations.
  • The December CPI supports our view that the longer-term disinflationary trend remains intact and they expect the Federal Reserve will cut interest rates three times in 2025.

Contributors

Cristina Dwyer

Analyst, J.P. Morgan Wealth Management

Global Investment Strategy Team

J.P. Morgan Wealth Management

The December 2024 Consumer Price Index (CPI) report offered a welcome reprieve, as Core CPI (excluding food and energy) rose by a milder-than-expected 0.2% month-over-month (MoM) after four consecutive months of 0.3% MoM increases. Year-over-year (YoY), Core CPI increased by 3.2%, decelerating from the 3.3% YoY rise in November 2024.1

Headline CPI came in as expected at 0.4% MoM in December and YoY, headline CPI also matched expectations with a 2.9% rise, up from 2.7% in November 2024.

Chart showing percentage change in the CPI for headline and core inflation from 2020-2024.

Unpacking the headline CPI

The difference between the December headline CPI and the core CPI was driven primarily by higher energy prices.

Energy prices rose by 2.6% MoM accounting for over 40% of the total monthly CPI increase. This was notably driven by a sharp 4.4% MoM rise in gasoline prices.2

The food index increased by 0.3% MoM, cooling from a 0.4% MoM increase in November and rose by 2.5% YoY. This was fueled by a 0.3% MoM rise in both food at home and food away from home prices. Notably, egg prices jumped 3.2% MoM in part due to the ongoing Avian flu after an 8.2% MoM surge in November.

Breaking down the core CPI

Core inflation is closely watched by investors and members of the Federal Reserve because it excludes volatile categories such as food and energy. Therefore, it provides a cleaner view into more economy-driven inflation dynamics.

With that lens in mind, the underlying details of the core CPI data were also encouraging. In particular, shelter inflation, which is roughly 40% of the core CPI basket, continued to show signs of decelerating on both a month-over-month and year-over-year basis. A welcome sign that past price pressures are returning to more normalized, pre-pandemic levels. Within the shelter component, both the owners’ equivalent rent and rent indexes rose by 0.3% MoM. Notably, lodging away from home prices declined by 1% MoM, following a 3.2% MoM increase in November.3

It was also notable that healthcare services, which had been putting upward pressure on inflation, cooled during the month coming in at 0.18% (versus 0.5% MoM for the prior three months).

This subsector of inflation is important because it tends to be highly wage-driven. The step-down in December is consistent with the December 2024 jobs report, which showed further cooling of wage growth, particularly for production and nonsupervisory workers.

Core goods (excluding food and energy) rose by 0.1% MoM, following a 0.3% increase in November 2024. Meanwhile, core services (excluding housing and energy) increased by 0.2% MoM, the smallest rise since July 2024.4

There were monthly increases in airfares, used cars and trucks, motor vehicle insurance, medical care and new vehicles prices. Elsewhere, there were declines in personal care, communication and alcoholic beverages, among other indexes.

What could this report mean for the Federal Reserve?

The December CPI report supports our view that the longer-term disinflationary trend remains intact and they expect the Federal Reserve will cut interest rates three times in 2025. 

For more information on how this economic data may impact your investment strategy, consult a J.P. Morgan advisor.

References

1.

U.S. Bureau of Labor Statistics (BLS), “Consumer Price Index Summary.” (January 15, 2025)

2.

Ibid.

3.

Ibid.

4.

Ibid.

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