Inflation held steady in December, remaining well above the Fed's 2% target

• Headline inflation remained at 2.7% annually in December, with a 0.3% monthly increase, both cooler than LSEG economist expectations
• Core inflation (excluding food and energy) rose 0.2% monthly and 2.6% annually, below the 0.3% and 2.7% forecasts respectively
• Persistent above-target inflation complicates Federal Reserve decisions on potential interest rate cuts amid economic uncertainty

Summary: December Inflation Report

Key Data Points:

The Consumer Price Index (CPI) rose 0.3% month-over-month in December, with the annual inflation rate holding steady at 2.7% year-over-year, according to the Bureau of Labor Statistics. Both figures came in below economist expectations surveyed by LSEG.

Core inflation, which excludes volatile food and energy prices, increased 0.2% monthly and ticked up to 2.6% annually—also slightly below forecasts of 0.3% and 2.7%, respectively.

Market Implications:

Inflation remains persistently above the Federal Reserve's 2% target, complicating the central bank's decision-making on potential interest rate cuts. The data arrives amid broader economic uncertainty, with policymakers weighing the balance between controlling inflation and supporting economic growth.

Sector Impact:

Small businesses face continued pressure from elevated inflation and high borrowing costs, with reports indicating record bankruptcy levels on Main Street despite strong Wall Street performance. The persistent inflation environment suggests that corporate dominance and tight monetary policy continue to squeeze smaller enterprises.

Federal Reserve Outlook:

The December reading provides crucial data as Fed officials assess the trajectory of price growth and consider the timing and pace of potential rate cuts. While inflation showed modest improvement from peak levels, the 2.7% annual rate indicates the "last mile" to the Fed's 2% target remains challenging.

The slightly better-than-expected figures may provide some relief to markets anticipating monetary policy easing, though inflation's persistence above target suggests the Fed will likely maintain a cautious approach to rate adjustments.