The U.S. December CPI year-on-year growth rate fell to 2.7%, aligning with market expectations, while the core CPI year-on-year growth rate was 2.6%, slightly below the market's forecast of 2.7%. The month-on-month growth rate for core CPI was 0.2%, lower than the anticipated 0.3%. Overall, although short-term disruptions persist in U.S. food and energy inflation, the current backdrop of a weaker labor market and potentially diminishing tariff impacts suggests that future upward pressure on U.S. inflation remains manageable.
The unadjusted U.S. CPI year-on-year growth rate for December held steady at 2.7%, matching both the November figure and market expectations. The unadjusted core CPI year-on-year growth rate was also 2.6%, consistent with the November reading but below the expected 2.7%. Month-on-month CPI growth was 0.3%, aligning with the September figure and market forecasts, while core CPI month-on-month growth was 0.2%, matching the September reading (data for October and November were unavailable due to a government shutdown) but falling short of the 0.3% market expectation.
U.S. food inflation saw a month-on-month increase of 0.7% in December, driven upward by factors including tariffs and shortages in agricultural product supplies. The month-on-month growth rate for food at home rose to 0.7% from 0.3% in September, while food away from home increased to 0.7% from 0.1%. Specific subcategories such as cereals and bakery products, meats, dairy and related products, and fresh fruits recorded relatively high month-on-month growth rates. Certain items, like coffee, experienced significant price increases partly due to tariff effects. Additionally, supply shortages contributed to rising prices for some agricultural products, such as beef. Short-term food price pressures are likely to persist; however, overall U.S. food inflation growth in 2026 is expected to be lower than in 2025, with the USDA projecting a 2.7% increase for all food prices in 2026.
The U.S. energy inflation component registered a month-on-month growth of 0.3% in December, and geopolitical factors among others may cause periodic disruptions to energy-related inflation pressure in the future. The energy category's month-on-month growth was 0.3%, with a year-on-year increase of 2.3%. Currently, global oil supply is ample amid economic weakening, U.S. crude production sits at historically high levels, and expectations of a market surplus have intensified, leading to volatile downward pressure on crude oil prices late last year. However, recent geopolitical events involving the U.S. and Venezuela, alongside tensions with Iran, have pushed crude prices higher. Should geopolitical risks escalate, oil prices could experience periodic increases, yet significant sustained gains appear unlikely against a backdrop of sluggish global demand. Conversely, high U.S. natural gas production combined with rising temperatures has recently weakened natural gas prices, suggesting a soft near-term outlook.
The U.S. core goods inflation component recorded a flat 0% month-on-month change in December, marking its lowest level since May 2025. The U.S. government's reduction of electric vehicle subsidies, coupled with tariff-induced increases in car prices, weaker demand, and a high-interest-rate environment further elevating purchasing costs, has diminished American households' vehicle affordability. This has resulted in limited month-on-month growth for used cars and trucks, as well as new vehicles. Furthermore, influenced by tariff policies, U.S. apparel, and furniture and furnishings CPI still showed relatively high month-on-month growth rates in December. Looking ahead, tariff policies are expected to continue exerting periodic upward pressure on core goods inflation, but weakening consumer demand should also temper price increases in this category.
U.S. core services inflation rose to a 0.3% month-on-month growth rate in December, with stickiness primarily remaining in the shelter and medical care components. Specifically, shelter inflation rebounded to a 0.4% month-on-month increase from 0.2% in September, with its subcomponents, rent of primary residence and owners' equivalent rent, both growing 0.3%, indicating sustained high stickiness. Medical care inflation also increased to 0.4% month-on-month from 0.3% in September, maintaining significant persistence. Transportation services inflation rose to 0.5% month-on-month from 0.3%, influenced by factors including energy prices. Given the current weak U.S. labor market and persistent wage growth, the risk of a significant further acceleration in core services inflation appears contained; however, its inherent stickiness is expected to persist.
We believe overall U.S. inflationary pressures are relatively manageable going forward. Although risks of escalating global geopolitical conflicts persist, potentially causing short-term disruptions in food and energy inflation, food inflation growth in 2026 is projected to be lower than in 2025. Meanwhile, energy prices lack strong momentum for sustained, sharp increases amid weak global demand and relatively ample supply. While tariff policies may continue to exert periodic upward pressure on core goods inflation, weakening consumer demand should抑制 price growth in this category, with automotive-related inflation indicators already showing signs of cooling. Against the current backdrop of a weaker U.S. labor market, we anticipate the risks of a significant further rise in core services inflation are controllable, though its persistent nature will likely remain.
Risk factors include unexpected changes in the U.S. economy; unexpected policies from the Trump administration; unexpected U.S. monetary policy moves; and unforeseen geopolitical risks.
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