A single chart displays the inflation breakdown for December 2024.

• In December 2024, the annual consumer price index, which measures inflation, increased by 2.9% compared to November's 2.7%.
• The increase was due to various factors including energy, food, vehicles, car insurance, and airline fares.
• Disinflation was observed in both "Core" CPI and shelter prices.

Higher energy and food prices led to an increase in inflation in December, as indicated by the consumer price index.

The Bureau of Labor Statistics reported on Wednesday that the Consumer Price Index (CPI), an inflation gauge, increased by 2.9% in December 2024 compared to the previous year.

The annual inflation rate increased from 2.7% in November to 2.9% in December, and from a recent low of 2.4% in September.

Evidence suggests that inflation will likely resume its downward trend in 2025, despite the upward move appearing discouraging, economists said.

If President-elect Donald Trump's administration implements policies such as tariffs and tax cuts, it could halt or reverse the progress made, potentially leading to inflation.

Inflation's trajectory is determined by policy, according to Joe Seydl, a senior markets economist at J.P. Morgan Private Bank.

The Consumer Price Index (CPI) gauges the rate of price changes for a variety of products and services, including haircuts, coffee, clothing, and concert tickets.

Despite a decrease in CPI inflation from its peak of 9.1% in June 2022, it still exceeds the Federal Reserve's target of a 2% annual rate in the long run.

The Personal Consumption Expenditures Price Index, used by the Fed as an alternative inflation measure, typically has CPI readings that are approximately 0.2 to 0.3 percentage points higher, according to Seydl.

""We'll be back on track by the end of this year," Seydl stated."

Eggs are a 'swing factor'

There were some trouble spots in December.

According to CPI data, grocery prices increased by 0.3% from November to December. This is consistent with a rise of about 0.2% a month, which would help the Fed hit its target, economists said.

Seydl stated that eggs play a "swing factor" in the rise.

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The highly contagious avian influenza, or bird flu, has had a "significant impact" on egg prices in the U.S., as millions of egg-laying chickens have been killed due to the virus, reducing the egg supply.

Egg prices experienced the largest increase of any grocery item in December, rising 3.2% from November. Since December 2023, they have increased by 37%.

Despite the perception, the average price of gasoline decreased by two cents last month, from $3.03 on Dec. 2 to $3.01 on Dec. 30, according to Energy Information Administration data.

Inflation data was adjusted by federal statisticians for seasonal patterns, but gasoline prices fell less than usual in December, resulting in the CPI registering a lower-than-normal drop as an inflation increase, according to Seydl.

The Consumer Price Index (CPI) reports that gasoline prices have decreased by over 3% in the past year, while groceries have increased by 1.8%.

Shelter inflation continues to retreat

The CPI report had some bright spots, including improvements in shelter.

Since January 2022, the 4.6% annual inflation rate for housing in December was the lowest. As the largest component of the price index, it significantly influences inflation's trajectory.

In December, the monthly core CPI dropped to 0.2% from 0.3% since August, while the annual core inflation rate decreased from 3.3% to 3.2%.

Mark Zandi, Moody's chief economist, stated that it's encouraging to see inflation gradually decrease.

""The only difference between our current location and the Fed's target is the slowing growth in the cost of housing," he stated."

If there are no obstacles from the Trump administration's policies, Zandi predicts that inflation will reach its target level by spring or summer.

Despite a strong labor market, wage growth slowed down in December, with average hourly earnings increasing at a 3.9% annual rate, compared to 4% in November, according to a separate BLS report released on Friday.

If wage growth increases, businesses in the service sector, such as leisure and hospitality, may increase their prices due to labor being a significant input cost.

Trump tariff threat may influence consumer buying

The surge in demand for replacement vehicles after October's hurricanes will be renewed by the California wildfires, according to Thomas Ryan, North America economist at Capital Economics, who wrote in a note on Wednesday.

Since December 2023, car insurance prices have increased by 11%, with a monthly increase of 0.4%.

Due to the lag effect from high vehicle inflation earlier in the pandemic, economists stated that car prices have a significant impact on motor vehicle insurance. When prices are high, insurers' cost to replace vehicles after a car accident is also significantly increased.

He wrote that consumers believe it is a better time to purchase durable goods due to the expectation of tariffs.