Inflation in the United States ended 2025 on a note of both relief and renewed anxiety, as the latest data from the Bureau of Labor Statistics showed consumer prices rising 2.7% compared to a year earlier. This figure, reported on January 13, 2026, marks a stabilization from November and is in line with economists’ forecasts, but it also caps a year in which many Americans felt persistently squeezed by the cost of living.
The annual increase in the Consumer Price Index (CPI) matched November’s number, signaling that price pressures did not ease further as the year closed. Core inflation—which strips out the volatile food and energy categories—rose by 2.6% over the past 12 months, matching a four-year low, according to the Bureau of Labor Statistics. That core figure was slightly below the 2.7% predicted by analysts, offering a glimmer of hope that price growth may be cooling after months of economic uncertainty.
Yet for millions of Americans, the headline numbers only tell part of the story. Food prices, for example, increased by 3.1% in December—outpacing overall inflation and putting a strain on household budgets. The pain was especially acute for certain staples: ground beef prices shot up 15.5% over the year, coffee surged 19.8%, and bananas rose 5.9%, while eggs provided a rare respite, falling 20.9% after last year’s bird flu outbreak sent prices soaring. The 0.7% monthly jump in food prices was the fastest since 2022, driven by higher costs for meats, dairy, and coffee, as reported by The New York Times.
Housing and shelter costs also continued their upward climb. In December, housing costs rose 0.4% from the previous month and 3.6% annually. Shelter costs, which account for more than a third of the CPI, increased by 0.4% for the month and 3.2% for the year. Owners’ equivalent rent—a policy-sensitive measure—was up 0.3% monthly and 3.4% annually. These increases reflect a rebound in housing costs as data collection resumed in many cities following the extended government shutdown earlier in the year.
Energy prices presented a mixed picture. While energy costs overall rose 0.3% in December and 2.3% over the year, gasoline prices actually declined by 0.5% for the month and 3.4% annually. On the other hand, fuels and utilities climbed 0.8% monthly and a hefty 6.7% compared to a year ago, a source of frustration for households already feeling caught in what many describe as an affordability crisis.
Other consumer categories showed varied trends. Apparel prices increased by 0.6% both monthly and annually, transportation costs were flat for the month but up 0.4% annually, and airline fares spiked by 5.2% in December—though they were down 3.4% from a year ago. Recreation prices posted a 1.2% monthly jump, the largest ever recorded since 1993, according to the BLS. Used cars and trucks, meanwhile, saw prices fall by 1.1% in December, continuing a trend of deflation in that sector.
The inflation landscape in 2025 was shaped by a series of unusual factors. The year began with the Trump administration imposing steep tariffs on imports from most countries, raising concerns about a new wave of price hikes. Yet, as The New York Times and Harvard economists noted, the actual impact of these tariffs was more muted than many predicted, in part because retailers absorbed some of the costs and exemptions were granted for certain products. By the end of September, the effective tariff rate was about 14.1%, roughly half the headline rate announced by the administration.
Adding to the complexity were distortions in the inflation data caused by the extended government shutdown and methodological quirks at the Bureau of Labor Statistics. November’s CPI reading was artificially low due to data collection irregularities, and economists caution that it will be spring before these effects fully wash out of the numbers. As a result, both top-line and core inflation data are expected to move higher as the statistical noise fades.
For policymakers at the Federal Reserve, the December inflation report provided little impetus to change course. The Fed, which targets a 2% annual inflation rate, cut its benchmark interest rate three times in late 2025 to counter a cooling labor market, even as inflation remained above target. The next meeting of the Federal Open Market Committee is scheduled for January 27–28, 2026, and markets are betting—at a 95% likelihood—that rates will stay in the 3.5% to 3.75% range.
President Donald Trump, however, seized on the latest CPI numbers to renew his calls for aggressive interest rate cuts. "Great (LOW!) Inflation numbers for the USA. That means that Jerome 'Too Late' Powell should cut interest rates, MEANINGFULLY!!!" Trump posted on Truth Social. "If he doesn't he will just continue to be 'TOO LATE!'" The president’s pressure campaign comes amid heightened tensions between the White House and the Fed, including a criminal investigation into Fed Chair Jerome Powell over alleged mismanagement of a costly headquarters renovation—a move widely viewed as a political attempt to influence monetary policy.
Fed officials, for their part, have pushed back firmly against what they see as threats to the institution’s independence. In a rare video statement, Powell said, "This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president." Every living former Fed chair and several former Treasury secretaries issued a joint statement decrying prosecutorial attacks aimed at undermining the central bank’s autonomy.
Looking ahead, the window for a near-term Fed rate cut appears to be closing. Investors now see only a 5% probability of a cut in January and an 18% chance in March, with June offering a 50% likelihood—assuming political wrangling over Powell’s replacement doesn’t further complicate matters. Expansionary fiscal policies, including large tax cuts effective January 1, 2026, are expected to bolster disposable income and spur economic growth close to 3% in the first half of the year. This raises questions about whether a rate cut is warranted when the economy is running hot and well above the long-term growth trend of 1.8%, as noted by RSM.
Despite some signs of cooling, inflation remains stubbornly above the Fed’s 2% target, and the political stakes are rising as Americans continue to feel the pinch at the grocery store, gas pump, and rental office. With the next few inflation reports likely to be closely scrutinized for both economic signals and political implications, the path forward for monetary policy—and for the Fed’s independence—remains as uncertain as ever.
