December’s personal consumption expenditures (PCE) report shows a worrying uptick in U.S. inflation, with the headline rate rising to 2.6% — the highest level in seven months and a notable increase from September’s 3½-year low of 2.1%.
The month-over-month gain of 0.3% marked the largest increase since April. Core PCE, which excludes the more volatile food and energy components, held steady at 2.8%. That persistence in core inflation, together with a resilient economy and a strong labor market, has prompted the Federal Reserve to keep interest rates elevated and to signal that cuts could be delayed further than previously expected.
Outlook for inflation remains uncertain and shaped by several influences. The Fed’s updated projections show PCE inflation ending 2025 at about 2.5%, still above its 2% goal, which suggests policymakers see inflationary pressures lingering. At the same time, policy shifts from the new administration — particularly in areas such as trade and immigration — could introduce additional upward pressure on prices, complicating the path back toward the Fed’s target.
Taken together, the data and policy environment indicate that inflation is proving stickier than hoped. While headline inflation has eased compared with peaks seen earlier in the post-pandemic period, the sustained level of core inflation and potential supply-side changes mean that monetary policy will likely remain cautious. Consumers and businesses should expect a continued focus from the Fed on price stability as it balances the risks of easing too soon against those of keeping rates higher for longer.