Consumer price growth ticked up in December, a sign President-elect Donald Trump will inherit the inflation issues that dogged the Biden administration as he re-takes the White House next week.
The Bureau of Labor Statistics reported Wednesday that the annual inflation rate — which is calculated based on prices compared to a year ago — climbed to 2.9% from 2.7% in November.
On a monthly basis, the rate rose to 0.4%, up from 0.3% a month prior and above expectations.
Even as the broader inflation index picked up, a measure that strips out volatile food and gas items climbed less than expected. That so-called “core” reading is closely watched by investors.
Stock futures soared after the report’s release, with the Dow Jones Industrial Average indicated to open higher by nearly 700 points and the S&P 500 and Nasdaq set to jump more than 1.5%.
Traders were also encouraged by the “shelter” category, which saw the smallest 12-month increase since January 2022. That component, which measures several changes in rent-price growth, had failed to meaningfully decline for many months.
Some market analysts said the surprise core reading in Wednesday’s report signals choppy conditions as Trump takes office.
“Markets are likely to be whipsawed over the next few data releases as investors seek a narrative that they can be comfortable with for more than just a few days at a time,” Seema Shah, chief strategist at Principal Asset Management, said in a note.
On Friday, the BLS reported the country added 256,000 jobs last month, significantly surpassing expectations and indicating U.S. economic growth not only remains steady but also may be getting hotter.
Trump was re-elected in part to maintain the economic momentum that took root during the Biden administration. The evidence can be found in gross domestic product figures that continuously surpassed expectations and stock prices that have soared to all-time highs.
But that growth came at the cost of several years of surging inflation, not to mention higher borrowing costs for the United States and elevated interest rates for consumers.
If those conditions persist, they could upend Trump’s economic policy agenda, which many mainstream economists say could result in further price increases.
“Markets initially celebrated the election results, but the party was less festive than it was in 2016-17,” BCA Research said in a note to clients Monday. “The macro backdrop is not as forgiving for deportations, reflation and tariffs as it was eight years ago, and the incoming administration could face a rougher ride than it did in its first go-round.”
Markets have responded to the threat of further price increases by punishing stock and bond investors alike. The initial surge in stock prices that accompanied Trump’s election in November has been almost entirely erased.
Meanwhile, U.S. borrowing costs, already under pressure from skyrocketing debt issuance, have reached new highs alongside signals from the Federal Reserve that it intends to keep its key interest rate elevated in response to the threat of further price increases.
Trump’s tariff threats have especially added to those fears — with some analysts suggesting some consumers may have already sent prices upward as they pulled forward purchases in anticipation of the trade levies.
“Recent economic strength has combined with a rising threat of tariffs to increase upside inflation risks,” Shah, of Principal Asset Management, said in a separate note ahead of Wednesday’s release.
Not all sectors of the economy are showing strength. White-collar sectors, reflected in the business and professional services components of labor surveys, have added almost no net new jobs over the past 18 months. Payroll growth in manufacturing has also stalled.
And not all economists are expressing strong concerns about renewed price increases resulting from Trump’s planned policies — or that those plans would result in the Fed’s unexpectedly increasing interest rates.
“We do not expect fiscal or immigration policy changes to boost inflation appreciably, and we find it hard to envision tariffs that raise inflation enough to make a plausible case for hiking that do not also unsettle the equity market, as even much smaller tariffs did in 2019,” Goldman Sachs chief economist Jan Hatzius wrote in a recent note.
But overall sentiment remains cautious as hopes for more “disinflation” — or a slower rate of price increases, the condition Trump would most desire — hang in the balance.
“Disinflation from here on out will be much more gradual,” Bank of America analysts said in a note to clients this week.
