Consumer Prices Rose 3.00% Year-Over-Year in December, Matching November's Pace
What Happened
The PCE Price Index — the Federal Reserve's preferred inflation gauge — rose 0.4% in December, the fastest monthly gain since February. After several months of modest 0.2% readings, the acceleration is a reminder that the path back to the Fed's 2% target isn't a straight line. It adds a layer of caution to the rate-cut conversation heading into early 2026. PCE inflation rose 0.4% in December 2025, doubling the 0.2% pace seen in both October and November. The index climbed from 128.149 to 128.605 — the largest single-month increase since February, which also registered a 0.4% gain. The pickup ended a stretch of relatively tame monthly readings that had run from March through November, with most months coming in at 0.2% or 0.3%. The Federal Funds Rate held steady at 3.64% heading into 2026, suggesting the Fed had already paused its rate-cutting cycle. December's hotter print reinforces why that pause may last longer than some had hoped.
Core Stats
| Indicator | Period | Current | Previous |
|---|---|---|---|
| CPI YoY | December 2025 | 3.00% | 2.99% |
| Core CPI YoY | December 2025 | 2.84% | 2.89% |
| CPI MoM | December 2025 | 0.30% | 0.25% |
| Shelter YoY | December 2025 | 3.42% | 3.38% |
| Services YoY | December 2025 | 3.51% | 3.48% |
Source: Federal Reserve Economic Data (FRED)
Also Worth Noting
| Indicator | Period | Current | Previous |
|---|---|---|---|
| PCE Price Index (Month-over-Month Change) | December 2025 | ▲+0.4% | +0.2% (November 2025) |
| PCE Price Index (Index Level) | December 2025 | 128.605 | 128.149 (November 2025) |
| Federal Funds Effective Rate | February 2026 | 3.64% | 3.64% (no change) |
Source: Federal Reserve Economic Data (FRED)
Market Reaction
Markets absorbed the report with relative calm. The S&P 500 gained 0.8%, closing at 6,795.99, as investors weighed the inflation uptick against an otherwise steady economic backdrop. The 10-year Treasury yield edged up slightly to 4.15%, a modest move that reflects some recalibration of rate-cut expectations but not outright alarm. The Federal Funds Rate remained at 3.64% with no immediate policy shift. Traders appeared to treat the December number as a yellow flag rather than a red one — worth watching, but not enough on its own to upend the outlook.
Signal vs. Noise
Likely temporary (noise):
- December often sees seasonal price pressures in categories like travel, gifts, and food services that don't persist into January
- The February 2025 spike to 0.4% also proved temporary, followed by near-zero growth in March — a pattern that could repeat
- Year-end inventory and pricing adjustments by retailers can distort a single month's reading
Possible signals:
- The 0.4% December reading matches February's spike, suggesting inflation may be reaccelerating rather than experiencing a one-time blip
- Monthly PCE has not printed below 0.2% since March 2025, indicating a persistent underlying pressure even before December's jump
- The Fed Funds Rate has been unchanged, meaning monetary policy isn't providing additional restraint — which could allow price pressures to build
Pattern to Remember
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