Inflation in the US in December 2025 did not surprise economists. The Fed's target remains exceeded

December saw the stabilization of CPI inflation in the United States at an elevated level. The only – and a minor – surprise was the core inflation reading, which was slightly lower than the market consensus.

In December 2025, CPI inflation in the USA was 2.7% – reported the government Bureau of Labor Statistics (BLS). This result is consistent with economists' expectations and the same as the sensationally low reading for November. Then everyone was surprised by the result of 2.7%, although the result was widely expected to exceed 3%.

An even lower reading – at 2.57% y/y – was assumed by the Cleveland Fed's forecast model. This source indicated December CPI inflation of 0.20% m/m and 2.57% y/y. Meanwhile, prices excluding food, fuel and energy (so-called core inflation) were to increase by 0.22% month-on-month and 2.64% year-on-year. The market consensus assumed an increase of 0.3% on a monthly basis. The actual BLS reading of 0.2% m/m and 2.6% y/y turned out to be slightly lower than expected.

In turn, in terms of monthly dynamics, we observed a clear acceleration of CPI inflation in the United States. After a shockingly low increase of 0.1% m/m reported for November and October, December brought an increase in CPI by 0.3% m/m. For comparison, in September the consumer price index increased by 0.3% after an increase of 0.4% in August, 0.2% in July and 0.3% in June.

However, the 6-month moving average of monthly CPI dynamics remained unchanged at 0.23%. If this momentum is maintained for the next 12 months, we would receive CPI inflation of 2.84% next year. That is, close to the current one.

The American problem with too high inflation

All this does not change the fact that December was another month of increased CPI inflation in the United States. Before the November slowdown to 2.7%, we had an acceleration in September to 3.0%, compared to 2.9% in August and 2.7% recorded in July. These readings continue to exceed the Federal Reserve's 2 percent target. TThis has been the state of affairs for 58 months – i.e. since March 2021. In total, this means that the federal target has been exceeded for almost 5 years.

Despite CPI inflation approaching 3%, a month ago the Federal Reserve not only reduced interest rates for the third time in a row, but also resumed the “money printing” program, announcing the purchase of Treasury bills for USD 40 billion per month. In total, in September, October and December, the FOMC cut rates by 75 basis points, despite CPI inflation rising and exceeding the 2 percent target.

Jerome Powell made it clear that the fragile situation on the labor market is more important than increased inflation. For several months, the US economy has not been creating new jobs. The unemployment rate – although still historically low – is slowly rising. As you can see, the Fed (as well as President Trump) prefers to see higher inflation and lower unemployment rather than the other way around.

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