December Inflation Down Slightly, Not Flat

The U.S. Bureau of Labor Statistics released its report for December on January 13^th.

December’s inflation was down slightly when calculated to two decimal places despite the BLS reporting that November and December were both 2.7%.

The December 2025 inflation report (released in January) shows that U.S. consumer prices continued to moderate at the end of the year, with the Consumer Price Index (CPI) actually falling on a monthly basis. Key drivers included lower commodity prices, with gasoline down on an annual basis. However, services were still the biggest gainers.

December Inflation Summary:

The BLS reported Annual Inflation UNCHANGED at 2.7% but when we look at it to 2 decimal places, we see it actually fell slightly.

• Annual Inflation down from 2.74% to 2.68%
• CPI Index fell from 324.122 to 324.054
• Monthly Inflation for December 2025 was -0.02% 
• Next release February 11^th, 2026

Annual Inflation Table

BLS Commentary:

“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent on a seasonally adjusted basis in December, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.7 percent before seasonal adjustment. The index for shelter rose 0.4 percent in December and was the largest factor in the all items monthly increase. The food index increased 0.7 percent over the month as did the food at home index and the food away from home index. The index for energy rose 0.3 percent in December. The index for all items less food and energy rose 0.2 percent in December. Indexes that increased over the month include recreation, airline fares, medical care, apparel, personal care, and education. The indexes for communication, used cars and trucks, and household furnishings and operations were among the major indexes that decreased in December.”

BLS Inflation Components:

Looking at table A below, we can see that on an annual basis, energy commodities like gasoline are still down, but energy services are up fairly significantly, with Natural Gas (called “Utility Piped Gas”) up the most. On an annual basis, gasoline is down -3.4%. On a monthly basis, Used Vehicles are down -1.1%.

Inflation: All Items vs. Excluding Food and Energy

Although these “Seasonally Adjusted” numbers are slightly different than those typically presented by the BLS, the following chart from the Federal Reserve shows the gap between inflation with and without Food and Energy. So, we can see how much food and energy contribute to overall inflation. Energy prices are no longer a mitigating factor.  Previously, without food and energy, inflation was slightly lower. But as of December 2025, both with and without food and energy inflation is almost exactly 2.65% according to the FED.

 

Source: St. Louis FED

After peaking in October 2025, the Global money supply fell in November. For the last month, it has been holding pretty steady at October levels, although as we saw above, the U.S. money supply has been increasing.

FED Funds Rate

The FED Funds rate fell to 3.72% in December after being as high as 5.33% a little over a year earlier.

 

1 Year MIP Inflation Prediction vs. Actual:

Our prediction from a year ago almost perfectly nailed the fourth quarter of 2025.

Go here to view our current MIP projection.

Inflation Chart

Monthly Inflation Compared to Previous Years:

The monthly inflation rate for December 2025 was very slightly negative at -0.02%.

The combined rate for the 2 months of October and November was -0.21%.

A year earlier, it was slightly positive at 0.04%.

 

See: Monthly Inflation Rate for more information and a complete table of Unadjusted Monthly Rates.

Misery Index

Unemployment 4.40% + Inflation 2.68% = 7.08%

This month, inflation is down, as is unemployment, and so the misery index is 7.08%. For the first half of 2024, the Misery index hovered around 7% before falling to the high 6s. It finished the year at 6.99% and moved up very slightly to 7.00% in January 2025.

Read More on the Misery Index…

Rate of Change

Read more on InflationData.com.