Inflation Steady in December

Inflation held steady in December, matching November’s reading, according to the Bureau of Labor Statistics (BLS) latest report. This December report was the first report to include a month-to-month figure since the government shutdown. However, the report should be read with caution as data distortions from the shutdown continue to affect key inflation measures, particularly housing.

First looking at annual data, on a non-seasonally adjusted basis, the Consumer Price Index (CPI) rose by 2.7% in December compared to the year prior. Excluding the volatile food and energy components, the “core” CPI increased by 2.6% over the past twelve months. A large portion of the “core” CPI is the housing shelter index, which increased 3.2% over the year. Meanwhile, the component index of food rose by 3.1%, and the energy component index increased by 2.3%.

Before noting monthly changes in the CPI, it is important to mention that the November’s CPI report was artificially depressed due to incomplete data collection and the imputation method used for key components including housing prices. BLS used ‘carry-forward imputation’ to calculate some of November’s data after the shutdown disrupted data collection. This method uses data from a previous month to estimate the missing figure, which potentially underestimates housing inflation.

Housing was one of the most impacted categories. Shelter accounts for 36.7 percent of the CPI and contributed approximately 58 percent of total inflation in 2024, making it the largest single component. Rent changes were unusually low due to BLS carrying forward imputation. This distortion is likely to cause housing inflation to look lower than reality for the next few months, with a catch-up effect expected in April.

On a monthly basis, the CPI rose by 0.3% in December (seasonally adjusted), and the “core” CPI increased by 0.2%.

The price index for a broad set of energy sources rose by 0.3% in December, with declines in fuel oil (-1.5%), gasoline (-0.5%) and electricity (-0.1%) were offset by increases in natural gas (+4.4%). Meanwhile, the food at home index and the food away from home index both increased by 0.7% in December.

The index for shelter was the largest contributor to the overall monthly increase in all items index. Other top contributors that rose in December included indexes for recreation (+1.2%), airline fares (+5.2%), medical care (+0.4%), apparel (+0.6%), personal care (+0.4%) as well as education (+0.2%). Meanwhile, the index for communication (-1.9%), used cars and trucks (-1.1%) and household furnishings and operations (-0.5%) were among the few major indexes that decreased over the month. 

The index for shelter, which makes up more than 40% of the “core” CPI, rising rose by 0.4% in December. The index for owners’ equivalent rent (OER) and the index for rent of primary residence (RPR) both increased by 0.3% over the month.

NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than core inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than core inflation, the real rent index rises and vice versa. The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components).

In December, the Real Rent Index remained unchanged. Due to the missing October data, the average monthly growth rate for 2025 cannot be directly compared to prior years.