Housing costs, energy prices fuel rise in U.S. inflation

Pesky, persistent U.S. inflation reared its head once again to close out 2023 as the costs of consumer goods and services rose at a 3.4% annual rate in December, up from November’s 3.1%, according to the latest federal data released Thursday.

The Labor Department’s Consumer Price Index Summary for December shows increases in housing costs were the primary driver of the uptick in the final month of the year but rising energy prices, along with more moderate price increases on essentials like food and medical care, helped push inflation higher. Overall inflation moved up .3% month-over-month in December, matching the step-up from October to November.

Core inflation, a metric that strips out volatile food and energy prices, ticked down to a 3.9% annual rate in December from November’s 4.0%.

The new data may push the Fed to consider delaying the interest rate cuts it signaled were coming in 2024, with many analysts predicting the first of those cuts to the monetary body’s benchmark overnight lending rate, which currently sits in the 5.25% to 5.5% range, likely to happen at the Fed’s March meeting.

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Interest rate adjustments are the Fed’s primary weapon in an ongoing battle against the elevated prices of consumer goods and services. The body left its benchmark rate unchanged after its last meeting of 2023, extending an adjustment pause after levying 11 consecutive hikes going back to March 2022. The rate hikes aim to raise the cost of debt for businesses and consumers, which should, theoretically, reduce the amount of spending and overall economic activity, a shift in dynamics that typically brings inflation rates down.

The December inflation data reflects a rate still well north of the Fed’s target annual rate of 2%.

“These are not bad numbers, but they do show that disinflation progress is still slow and unlikely to be a straight line down to 2%,” Seema Shah, chief global strategist at Principal Asset Management, told CNBC. “Certainly, as long as shelter inflation remains stubbornly elevated, the Fed will keep pushing back at the idea of imminent rate cuts.”

Upticks in housing-related costs have an outsize impact on the Labor Department’s calculation of the consumer price index as it represents about a third of the index, overall, with home ownership alone accounting for about 25% of it, according to The Associated Press. The government measures homeownership costs by calculating how much rent a homeowner would likely charge if that home were actually being rented — a figure seen as equivalent to the cost of owning the property. Overall housing prices rose 0.5% from November to December. Rents were up 0.4%, homeownership costs up 0.5%.

While Utah’s housing costs have been among the fastest rising in the country in the last several years, the regional inflation rate for Mountain West states, which include Utah, came in well below the national average in December at 3.0%, according to the Labor Department report.