The latest CPI reading for December confirms what many households have felt throughout 2025: inflation may have cooled from its pandemic-era extremes, but it remains stubbornly present in everyday life. According to CBS News, the Consumer Price Index rose at an annual rate of 2.7% in December, unchanged from November and broadly in line with economists’ expectations. This outcome capped a year marked by economic resilience, steady employment, and yet persistent cost-of-living pressures that continue to weigh on consumers.
While markets often focus on whether inflation is accelerating or decelerating, the December CPI report underscores a more nuanced reality. Inflation is no longer surging, but it is also not fading quickly enough to provide meaningful relief. For policymakers, investors, and households alike, the CPI remains a central barometer of economic health, shaping expectations for interest rates, wages, and purchasing power.
Understanding the December CPI Reading
The CPI tracks changes in the prices of a basket of goods and services commonly purchased by consumers, including food, housing, transportation, and apparel. In December, the headline CPI rose 2.7% year over year, matching November’s pace and coming in slightly above the 2.6% forecast by economists surveyed by FactSet.
This consistency suggests that inflationary pressures neither intensified nor meaningfully eased at the end of the year. According to CBS News, the data signals that prices did not soften further as 2025 closed, reinforcing the view that inflation has entered a more “sticky” phase. Rather than broad-based price declines, consumers are seeing uneven movements across categories, with some essentials becoming more expensive even as others stabilize or fall.
For economic observers, the CPI outcome reflects a balance between cooling demand in some areas and persistent supply-side constraints in others. It also highlights why inflation remains such a complex challenge for policymakers.
Core CPI and the Federal Reserve’s Perspective
Beyond the headline number, attention often turns to core CPI, which excludes volatile food and energy prices. In December, core CPI rose 2.6% over the past 12 months, slightly below the 2.7% economists had expected. On a monthly basis, core prices increased 0.2%, softer than the anticipated 0.3% gain.
This moderation offers some encouragement to policymakers. As Michael Pearce, chief U.S. economist at Oxford Economics, noted in commentary cited by CBS News, core goods inflation appears to have peaked. From the Federal Reserve’s standpoint, the core CPI is particularly important because it provides a clearer signal of underlying inflation trends, stripped of short-term volatility.
Nevertheless, even with core CPI easing slightly, inflation remains above the Federal Reserve’s long-term target of 2%. This persistent gap explains why the CPI continues to dominate discussions about monetary policy heading into 2026.
Food Prices and the Everyday Impact of CPI
For many Americans, the most tangible expression of the CPI shows up at the grocery store. Food prices rose 3.1% in December, accelerating from a 2.6% increase in November and marking the highest annual pace since August. According to CBS News, groceries remain a sticking point for households already stretched by higher housing and transportation costs.
Specific items illustrate the uneven nature of inflation captured by the CPI:
Ground beef prices jumped 15.5% compared with a year earlier.
Coffee prices surged 19.8% year over year.
Bananas rose 5.9% from December 2024.
Egg prices, by contrast, fell 20.9% from a year ago.
These figures highlight why many consumers feel squeezed even when headline CPI numbers suggest inflation is relatively contained. Essential items that make up a large share of household budgets continue to rise, reinforcing the perception that inflation remains a daily burden.
CPI, Tariffs, and the Political Backdrop
The path of the CPI in 2025 was shaped not only by market forces but also by policy decisions. According to CBS News, inflation climbed for several months following tariff announcements by the Trump administration. While some economists feared these levies would reignite inflation, the actual impact on the CPI proved more muted.
One reason was that many retailers absorbed a portion of the tariff-related costs rather than passing them fully on to consumers. As a result, the CPI reflected upward pressure without a dramatic surge. This episode underscores how the CPI captures the net effect of policy, corporate strategy, and consumer behavior, rather than responding mechanically to any single factor.
Still, the experience reinforced concerns about how quickly inflation could reaccelerate under certain conditions, keeping the CPI firmly in focus for both policymakers and markets.
Household Finances and the CPI Reality
Even as inflation stayed at or below 3% throughout 2025, the cumulative effect of rising prices has left many households feeling pinched. The CPI may show moderation compared with the 9.1% peak reached in June 2022, but it does not capture the lingering strain on savings, retirement planning, and homeownership aspirations.
According to CBS News, cooling inflation has not translated into outright price relief. Prices continue to rise, albeit more slowly, meaning consumers are paying more today than they were a year ago. For households with limited income growth, the steady climb reflected in the CPI complicates efforts to rebuild financial cushions depleted during earlier inflation spikes.
This disconnect between macroeconomic indicators and lived experience helps explain why inflation remains a dominant public concern, even as the CPI stabilizes.
The Federal Reserve’s Response to CPI Trends
The Federal Reserve has responded to evolving CPI dynamics with a delicate balancing act. In the final months of 2025, the central bank cut interest rates three times, aiming to counter a cooling labor market while inflation remained above target.
Fed Chair Jerome Powell emphasized that labor-market headwinds outweighed the risk of renewed price pressures. However, as Seema Shah, chief global strategist at Principal Asset Management, noted in commentary reported by CBS News, core inflation measures such as PCE inflation have remained above the Fed’s 2% target for more than four years.
This persistence underscores why the CPI remains central to policy debates. While rate cuts support growth, they also risk prolonging inflation if price pressures fail to ease further.
Market Expectations and CPI-Driven Forecasts
Financial markets are closely attuned to each new CPI release. According to CBS News, interest rate traders currently assign a 95% probability that the Federal Reserve will hold rates steady in the 3.5% to 3.75% range at its January meeting, based on tools such as the CME Group’s FedWatch.
This expectation reflects a consensus that while inflation is not accelerating, it is also not cooling rapidly enough to justify aggressive easing. The CPI thus serves as a stabilizing force in market forecasts, anchoring expectations around a prolonged period of steady policy.
Analysts broadly agree that the December CPI report supports a “wait and see” approach, reinforcing the notion that monetary policy will remain data-dependent well into 2026.
Expert Views on the CPI Outlook
Economists and strategists offer a range of perspectives on where the CPI is headed. Carla Nunes, a managing director at Kroll, observed that inflation is unlikely to fall to the Fed’s 2% target in 2026, although it may gradually gravitate closer, assuming central bank independence remains intact.
Others emphasize the mixed signals within the CPI data. While core inflation shows signs of easing, categories such as food and shelter continue to exert upward pressure. As Rob Holston of EY noted, December’s CPI reinforces that price pressures remain elevated in areas that matter most to consumers.
Taken together, these views suggest that the CPI will remain a source of debate and uncertainty, rather than offering a clear-cut narrative of victory over inflation.
Looking Ahead: CPI in 2026
As the economy moves into 2026, the CPI will remain a critical indicator shaping policy, markets, and public sentiment. Inflation is far below its pandemic peak, yet its persistence highlights the difficulty of restoring price stability without slowing growth too sharply.
Future CPI reports will be scrutinized for signs of either renewed progress or renewed risk. A sustained decline toward 2% would bolster confidence that inflation is finally under control, while any uptick could reignite concerns about the limits of monetary policy.
For now, the December CPI reading tells a story of an economy in transition: resilient, but still grappling with the aftershocks of an extraordinary inflationary period.
