U.S. inflation continued its gradual cooldown at the end of 2025, with new data signaling that price pressures remain contained and are easing more smoothly than many economists anticipated.
Core Inflation Comes in Cooler Than Expected
According to data released Tuesday by the Bureau of Labor Statistics, core consumer prices rose just 0.2% in December, undershooting consensus forecasts. On an annual basis, core inflation increased 2.6%, matching a four-year low and strengthening the narrative that inflation is steadily moderating rather than reaccelerating.
Economists say the consistency in core readings is particularly important, as it strips out volatile food and energy prices and provides a clearer signal of underlying inflation trends. December’s numbers suggest that disinflationary forces remain intact as the year closes.
Headline Inflation Holds the Line
When food and energy are included, headline CPI rose 0.3% month over month, leaving the year-over-year rate unchanged at 2.7%, the same level recorded in November. Energy prices edged higher, driven largely by rising natural gas costs, while food prices also increased despite a sharp decline in egg prices, which offered limited relief to consumers.
Once again, shelter costs were the single largest contributor to inflation, continuing a trend that policymakers have been monitoring closely. While housing inflation has cooled from its peak, it remains sticky enough to keep overall CPI from falling faster.
Data Distortions Complicate Comparisons
Economists cautioned that recent CPI data still carries statistical noise from earlier disruptions. November’s report may have been distorted by an unusually long government shutdown, which delayed the collection of October price data and forced the use of assumptions-particularly around housing costs.
Seasonal factors also played a role. Analysts noted that holiday-related discounts and promotions likely added volatility to late-year pricing. As those temporary effects fade, December’s softer core reading is viewed as a cleaner signal of where inflation is truly heading.
Implications for Federal Reserve Policy
The cooler-than-expected inflation print is likely to give the Federal Reserve greater confidence to pause additional rate cuts, at least in the near term. Analysts argue that underlying inflation trends now appear stable, reducing the urgency for further monetary easing.
That said, policymakers are not declaring victory yet. The Fed is expected to continue monitoring tariff-related price pressures, wage growth, and broader labor market conditions before making any longer-term shifts in policy. For now, December’s data supports a wait-and-see approach.
Markets React, Crypto Barely Budges
Traditional markets responded positively to the report. Equity futures moved higher, while Treasury yields slipped, reflecting optimism that inflation is cooling without tipping the economy into recession. Investors interpreted the data as supportive of a soft-landing narrative.
Crypto markets, however, were notably calm. Bitcoin showed little immediate reaction, trading sideways around the $92,000 level following the release. Analysts say the muted response suggests that crypto markets may have already priced in a slower inflation environment, leaving little room for surprise.
A Stable Backdrop to Start 2026
Overall, December’s inflation data reinforces the idea that the U.S. economy is entering 2026 on more stable footing. With inflation holding near multi-year lows and volatility easing, policymakers and investors alike appear increasingly confident that the worst of the inflation shock is behind them—though vigilance remains the watchword.
