Inflation Holds Steady at 2.7%; Core CPI Cools to 2.6%

U.S. consumer prices increased in December as ⁠the distortions related to the government shutdown that had artificially lowered inflation in November unwound, cementing expectations the Federal Reserve would leave interest rates unchanged this month.

The Consumer Price Index rose 0.3% last month, the Labor Department's Bureau of Labor Statistics said Tuesday.

In ‍the 12 months through December, the CPI advanced 2.7%, matching November's gain. ‍Economists polled by Reuters had forecast the CPI picking up 0.3%. The BLS estimated the CPI rose 0.2% from September to November.

Excluding the volatile food and energy components, the CPI increased 0.2% in December. This so-called core CPI rose 2.6% year-on-year in ​December, lower than analysts' 2.7% forecast.

Core CPI rose by the ⁠same margin in November. The BLS estimated the core CPI climbed 0.2% from September to November.

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The ⁠43-day shutdown prevented the collection of prices for October, resulting in the BLS using a carry-forward method to impute data, especially for rents, to compile November's ​CPI report.

While prices for November were collected, that was not until the second half of the month when retailers were offering holiday season discounts.

The carry-forward imputation method treated October prices as unchanged.

President Donald Trump's sweeping import tariffs have raised goods prices, creating an affordability challenge ⁠for households.

Inflation will be a political hot button this year as Trump and his fellow Republicans battle to retain control of the U.S. Congress.

The Fed tracks ‍the Personal Consumption Expenditures Price indexes for its 2% inflation target.

The pick-up in consumer inflation followed news last ‌week that the unemployment rate dipped in December even as job growth was tepid.

The U.S. central bank is expected to keep its benchmark overnight interest rate in the ⁠3.50%-3.75% range ​at its January 27-28 meeting.

An ‍escalation in tensions between Fed Chair Jerome Powell and Trump has left most economists not expecting a rate cut before Powell's term ends in ‍May.

The Trump administration has opened a criminal investigation into Powell, which the Fed chief called a "pretext" to influence rates.