December's CPI data shows core inflation remained elevated, with consumer staples and energy costs driving sustained spending pressure on middle-income households. The findings reinforce expectations of delayed rate cuts amid ongoing inflation concerns.
- Core CPI rose 3.8% year-over-year in December, up from 3.7% in November
- Electricity prices increased 5.4% annually; coffee costs up 7.2%
- Energy index rose 4.4%, driven by crude oil (CL=F) and natural gas (NG=F) gains
- 10-year U.S. Treasury yield (US10Y) climbed to 4.69%
- S&P 500 (SPX) declined 0.7% as markets priced in delayed rate cuts
- Market probability of a June 2026 rate cut fell to 38%
The latest Consumer Price Index report for December revealed that inflation in essential goods and services continues to weigh heavily on middle-class budgets, with year-over-year increases exceeding expectations across critical categories. Core CPI, excluding food and energy, rose 3.8% annually—up from 3.7% in November—highlighting sticky underlying price pressures. Within consumer staples, the cost of coffee climbed 7.2% year-over-year, while electricity prices jumped 5.4%, reflecting broader energy input costs and utility sector volatility. Energy markets reflected these trends, with crude oil (CL=F) closing at $82.40 per barrel, up 4.1% month-over-month, and natural gas (NG=F) reaching $3.85 per million British thermal units, a 6.3% increase. The surge in energy costs contributed to a 4.4% rise in the energy index, the highest gain since mid-2023. Meanwhile, the U.S. Dollar Index (DXY) strengthened to 105.3, indicating market anticipation of prolonged high interest rates as the Federal Reserve maintains a cautious stance. The data has immediate implications for financial markets. The 10-year U.S. Treasury yield (US10Y) rose to 4.69%—its highest level since early 2023—reflecting elevated inflation expectations and reduced demand for long-duration bonds. Equity markets reacted with caution, as the S&P 500 (SPX) dipped 0.7% amid growing concerns about consumer demand erosion. Utilities and consumer staples sectors saw increased volatility, with shares of companies like PepsiCo and Duke Energy experiencing modest declines as margin pressures mount. Market participants now expect the Federal Reserve to maintain its benchmark rate between 5.25% and 5.50% into at least mid-2026, with only a 38% probability of a rate cut by June, down from 52% in December. The report underscores that inflation remains a structural challenge, not a cyclical blip, particularly for low- and middle-income households whose spending on housing, utilities, and staple goods remains highly sensitive to price fluctuations.