US Annual Inflation Holds Steady at 2.7 Percent to Finish 2025

The December annual inflation rate was unchanged at 2.7 percent, according to new data released by the Bureau of Labor Statistics on Jan. 13.

This was in line with the market consensus.

Core inflation, which strips out volatile energy and food prices, was also flat last month at 2.6 percent—below the forecast of 2.7 percent.

From November to December, the consumer price index (CPI) rose 0.3 percent, matching market estimates. Core CPI ticked up 0.2 percent month over month, below economists’ expectations.

These numbers are a relief for consumers, says Stephen Kates, financial analyst at Bankrate.

“Consumers can breathe a sigh of relief that we didn’t snap back to the 3% annual inflation rate that was the consensus estimate in November,” Kates said in a statement to The Epoch Times.

“Although today’s reading doesn’t demonstrate additional progress for inflation, it doesn’t take a step backwards either.

“The November CPI turned out not to be a head fake after all.”

Cumulatively, inflation rose 2.2 percent last year on a seasonally adjusted basis. By comparison, inflation climbed about 6 percent in the first year of the previous administration.

Shelter was the largest factor for last month’s readings, the bureau noted. The index for shelter advanced 0.4 percent and is up 3.2 percent on a 12-month basis.

Shelter inflation remains a sticky component of above-trend inflation, adding to Americans’ cost-of-living concerns.

The Trump administration has proposed a series of measures this month to restore housing affordability, including banning large institutional investors from purchasing single-family homes and directing regulators to buy mortgage-backed securities.

However, Fed Gov. Stephen Miran believes shelter costs will continue to ease, as current levels reflect previous conditions “rather than current, supply-demand imbalances in the economy.”

“I therefore expect a faster decline in PCE shelter inflation,” Miran said in a Dec. 15, 2025, speech at Columbia University’s School of International and Public Affairs in New York.

“Two factors give me additional confidence: first, the negative population shock resulting from a reversal in net migration, and second, an elevated ratio of nominal shelter services consumption relative to overall consumption, which has historically been mean-reverting.”

December’s energy index was little changed, with gasoline sliding 0.5 percent and fuel oil falling 1.5 percent. Electricity costs also dipped 0.1 percent.

Oil and gas prices came down substantially in the home stretch of 2025.

While crude oil prices have risen recently amid U.S.–Iran tensions, they plunged about 23 percent last year, driven by soaring production, a global supply glut, and tepid worldwide demand.

Since oil accounts for about half of the retail price of a gallon of gasoline, the pain at the pump has diminished significantly.

The national average for a gallon of gas fell firmly below $3 last month, with two dozen states recording prices below $2.80, according to the American Automobile Association.

The food index—including the sub-indexes for supermarket prices and food away from home—also rose by 0.7 percent. Five of the six major grocery store food group indexes jumped to close out the year.

President Donald Trump’s higher import duties also had little effect on tariff-sensitive items.

The index for new vehicles was zero percent, while apparel rose 0.6 percent. Appliances declined 4.3 percent, smartphones fell 2.2 percent, and information technology commodities fell 2.2 percent. Canned fruits and vegetables edged up 0.1 percent.

The latest CPI report kicks off a week of inflation data.

The bureau will release the October and November 2025 producer price index (PPI), a pipeline inflation measure that reflects prices paid by businesses for goods and services and passed along to consumers. The PPI will be published on Jan. 14.

November’s export and import prices will also be released on Jan. 15.

Market Reaction

U.S. stocks registered tepid gains following the December CPI data, with the leading benchmark indexes ticking up.

The U.S. dollar index rose 0.1 percent, adding to its year-to-date gain of 0.7 percent. The index is a gauge of the greenback against a weighted basket of currencies.

Yields on U.S. Treasury securities were mostly in the red. The benchmark 10-year yield dipped below 4.18 percent. The 2-year yield, which typically tracks Fed policy expectations, erased more than 2 basis points to 3.52 percent.

The president weighed in following the inflation numbers, urging Federal Reserve Chairman Jerome Powell to lower interest rates “meaningfully.”

“If he doesn’t he will just continue to be, ‘Too Late!'” he wrote in a Truth Social post. “Also out, great growth numbers. Thank you Mister Tariff.”

Federal Reserve policymakers will have a lot of economic data to sift through when they convene their two-day policy meeting later this month.

While investors overwhelmingly expect the U.S. central bank to leave interest rates alone for the first time since July 2025, futures market data signal upwardly revised bets.

Officials continue to grapple with elevated inflation and deteriorating labor market conditions, causing a simultaneous threat to the Fed’s dual mandate of maximum employment and price stability.

Goodbye 2025, Hello 2026

Overall, the inflation picture has improved from earlier in 2025.

This past spring, many economists forecast surging prices and slowing growth due to Trump’s tariffs.

Instead, inflation has stabilized, and the Atlanta Federal Reserve’s widely watched GDPNow Model estimates that fourth-quarter GDP will expand by around 5 percent. U.S. stocks are also at all-time highs.

With much of the president’s trade policies firmly in place, aggregate inflation has eased, driven by a broad array of factors, including exporters lowering prices and businesses being reluctant to pass costs on to customers.

“We’re expecting inflation to trend a bit lower over the next two to four months,” Eric Clark, portfolio manager and CIO at Accuvest, said in a note emailed to The Epoch Times.

There could be bumps along the way, but “the stage is set for continued disinflation over the next couple of months,” Clark added.

January’s annual inflation rate is anticipated to slow to 2.2 percent, according to the Cleveland Fed Inflation Nowcasting Model.

The Fed is also optimistic that inflation is inching toward its 2 percent goal.

In the updated Summary of Economic Projections—a quarterly estimate by policymakers on policy and the broader economy—the annual median inflation rate is projected to slow to 2.4 percent this year and to 2.1 percent in 2027.