U.S. inflation refuses to back down. The Bureau of Labor Statistics (BLS) confirmed that prices rose again in December, pushing the annual inflation rate to 2.9%. That’s way over the Federal Reserve’s cozy little 2% target.
A monthly increase of 0.4% fueled this jump, largely driven by energy costs. Economists had been expecting a monthly rise of 0.3%, so this number hit harder than most forecasts.
Gasoline prices exploded by 4.4% in December, accounting for nearly 40% of the overall inflation jump. Energy costs as a whole climbed 2.6%. Meanwhile, food prices nudged up 0.3%. Over the year, food rose 2.5%, and energy prices dipped by 0.5%.
Shelter costs, the heavyweight in the CPI basket, climbed 0.3% in December and 4.6% over the year—the smallest annual increase since January 2022. Even so, housing remains a major headache.
While these numbers are better than last year’s 3.3%, they still paint a picture of stubborn inflation. Core inflation, which strips out food and energy, rose 0.2% last month. The annual core rate came in at 3.2%, down from November’s 3.3%. This slight dip is hardly enough for anyone at the Fed to relax.
Energy, shelter, and wages take center stage
Energy prices stole the show in December. Gas wasn’t the only thing spiking—used car and truck prices jumped 1.2%, while new vehicles edged up 0.5%. Transportation services surged 0.5% for the month and 7.3% year-over-year. Eggs? Those are still gold. Prices shot up 3.2% in December, racking up a ridiculous 36.8% increase for the year.
Auto insurance is another sneaky culprit. Rates climbed 0.4% in December and have surged 11.3% since last year. Inflation-adjusted earnings took a hit, falling 0.1% for the month. Workers’ year-over-year real wage gains stand at a flimsy 1%, according to a separate BLS report.
Job growth is still strong—December added 256,000 jobs, far exceeding predictions. While that’s great news for employment, it could keep inflation sticky. The Fed might have to consider more interest rate hikes if things don’t cool down.
The central bank is expected to hold its current policy during the Jan. 28-29 meeting. Futures markets still lean toward two rate cuts this year, with quarter-point adjustments, but nothing is set in stone.
Bitcoin set for a rocky year
Stock futures climbed after the CPI report, with the tech sector getting a boost. Tesla jumped 3.2%, Nvidia rose 1.7%, and the 10-year Treasury yield dropped 10 basis points to 4.686%.
Bitcoin also saw a modest 0.8% increase, but the fact that inflation is red hot is bad for Bitcoin, because it means the Fed really might not cut rates this year at all.
Treasury yields though dropped sharply after the CPI data, with the 10-year yield falling 10 basis points. Growth stocks surged, but as long as inflation keeps grinding higher than the Fed’s target, Bitcoin is unlikely to shine. This certainly isn’t the bull market we were hoping for.
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