Egg prices soar as U.S. inflation worsens

U.S. energy and food prices rose sharply last month, but progress toward stabilizing prices remains elusive.

The Labor Department said average prices rose 2.9% in December from a year earlier, up from 2.7% in November.

The monthly report showed that energy prices were responsible for more than 40% of last month's rise in inflation. The report also shows that egg prices are up more than 36% from 2023 as bird flu affects supply and causes shortages.

But other commodity prices rose less than expected this month, easing concerns that the Federal Reserve may have to take more aggressive action to stabilize prices.

So-called core inflation, which strips out often volatile food and energy prices, rose just 3.2% from December 2023 and just 0.2% from November, a smaller increase than analysts expected.

Economists say the indicator better reflects underlying trends.

U.S. stock prices soared and bond yields, the interest rate on U.S. government debt, fell in early trading in New York on Wednesday, reflecting relief in the market.

Seema Shah, chief global strategist at Principal Asset Management, said the latest data should ease “some anxiety that the U.S. is in the early stages of a second wave of inflation.”

“Perhaps the key takeaway is that markets are likely to get hammered over the next few data releases as investors look for a narrative that will make them feel comfortable for a few days,” she said.

Inflation (the rate of price increases) in the United States has fallen significantly since 2022, when it topped 9%.

Investors had expected a rate cut this year from the Federal Reserve, which has responded by raising rates to their highest levels in more than two decades.

But if the economy grows, the Fed is less likely to cut interest rates. Like this, Last month's job creation data came in stronger than expected Meaning U.S. interest rates are likely to remain unchanged.

Investors are also concerned that President-elect Donald Trump's plans for tariffs, mass immigration deportations and tax cuts could put upward pressure on prices. If this does drive inflation, it would also make the Fed less likely to cut interest rates.

Last month's data showed rising prices for many items, including used cars, airline tickets, medical care and car insurance.

Grocery prices rose 0.3% this month and 1.8% compared with the same period last year.

Rent and other house prices, which have been one of the biggest drivers of inflation, rose 0.3% from November and were unchanged from the previous month. Compared with December 2023, this is an increase of 4.6%.

Gasoline prices rose 4.4% from November, but were still lower than last year.

The Fed is widely expected to keep its key interest rate unchanged at its current meeting of about 4.3% at this month's meeting.

Tina Adatia, head of fixed income for client portfolio management at Goldman Sachs Asset Management, said inflation would have to cool further before the Fed can further taper spending, but today's data will keep those hopes alive.

“While today's news may not be enough to make a January rate cut possible, it reinforces the case that the Fed's rate-cutting cycle is not over yet,” she said.