What Core CPI Data Reveals About Inflation's 2025 Trajectory

The latest readings on underlying US inflation paint a nuanced picture heading into 2026. Core CPI—the measure that strips away volatile food and energy prices to show persistent price pressures—is expected to have climbed to 2.7% year-over-year in December, representing a modest acceleration from November’s 2.6% pace. For context, the November figure marked the slowest annual expansion since early 2021, making the anticipated December uptick less dramatic than headlines might suggest.

December Core CPI Expected to Edge Higher Despite Mixed Signals

Forecasters anticipate December’s core CPI will reflect a 0.3% monthly increase, mirroring expectations for overall inflation. This represents a moderate adjustment rather than a sharp reversal of the cooling trend that dominated throughout 2025. The year-end data matters because it sets expectations for Federal Reserve decision-making in early 2026, as policymakers seek clarity on whether inflation pressures are genuinely stabilizing or simply pausing.

Underlying the data are significant technical considerations. The November CPI report was distorted by collection gaps created during the government shutdown. The Bureau of Labor Statistics couldn’t release month-over-month figures that month, and missing rental data forced statisticians to assume prices remained flat—a methodology that likely suppressed the November headline reading. Bloomberg Economics noted that “the December print will be hot, but mostly because of an unwinding of some of the downward bias in November’s print,” suggesting much of the sequential rise reflects technical normalization rather than true acceleration in core CPI trends.

Federal Reserve Positioned to Hold Course Amid Data Uncertainties

The policy implications remain significant despite the noise in recent reports. Federal Reserve officials are widely expected to keep interest rates on hold as they await clearer signals on inflation’s true path. Labor market indicators—featuring slowing wage growth and softer job reports—support a cautious holding pattern rather than further tightening. John Williams, President of the Federal Reserve Bank of New York, and other regional Fed leaders, including Michelle Bowman, Alberto Musalem, Philip Jefferson, and Anna Paulson, are scheduled to provide public commentary throughout January and early February, offering opportunities to signal policy intentions.

The stakes for core CPI readings extend beyond academic interest. As central banks globally reassess their 2026 inflation outlook, each data point feeds into recalibrations of monetary policy paths. An acceleration in core CPI would complicate narratives of smoothly declining inflation, potentially prompting more hawkish rhetoric from Fed officials.

Consumer Spending Remains Resilient as Economic Data Accumulates

Retail activity offers a separate lens on economic momentum heading into 2026. Sales excluding automobiles are expected to show a 0.3% gain for November, mirroring October’s advance and pointing to steady consumer behavior. This resilience in spending—coming as core CPI figures tick up—suggests Americans haven’t dramatically curtailed purchases despite price pressures.

Beyond headline retail numbers, a cascade of economic reports will supplement the inflation picture. October new-home sales, November producer prices, December industrial output, and home resale figures all contribute context. In Canada, manufacturing and wholesale sales data, foreign investment trends, and population estimates will release in parallel, while travel metrics are expected to show continued softening in cross-border US visits from Canadian residents.

The interplay between core CPI momentum and consumer behavior will ultimately determine whether the Fed maintains its neutral stance or shifts course. As 2026 unfolds, each data release—from core inflation readings to retail sales—feeds into the complex calculus policymakers use to navigate price stability and growth.