Prices for consumers buying a variety of goods and services rose again in December, but 2024 ended with slightly better news on inflation, particularly for housing.

The U.S. Bureau of Labor Statistics reported on Wednesday that the consumer price index rose 0.4% this month on a seasonally adjusted basis, bringing the 12-month inflation rate to 2.9%. Economists surveyed by Dow Jones had been looking for readings of 0.3% and 2.9%, respectively.

However, excluding food and energy, the core CPI annual rate was 3.2%, down from the previous month and slightly better than the 3.3% forecast. The core indicator rose 0.2% month-on-month, which was also 0.1 percentage point lower than expected.

The main reason for the increase in CPI was a 2.6% increase in energy prices and a 4.4% increase in gasoline prices during the month. This factor is responsible for about 40% of the index's gains, according to the Bureau of Labor Statistics. Food prices also rose, up 0.3% for the month.

On an annual basis, food prices will increase by 2.5% in 2024, while energy prices will decrease slightly by 0.5%.

Housing prices, which account for about one-third of the CPI weight, rose 0.3%, but were up 4.6% from a year earlier, the smallest one-year increase since January 2022.

Stock futures soared after the news, while Treasury yields plummeted.

While the numbers compare favorably to forecasts, they still suggest the Fed has a lot of work to do to achieve its 2% inflation target. Headline inflation fell from 3.3% in 2023, while core inflation was 3.9% a year ago.

"Today's consumer price index is likely to make the Fed feel more dovish. It won't change expectations for a pause in rate hikes later this month, but it should curb some talk of a possible rate hike from the Fed," chief economist at Strategies Teacher Ellen Zentner said. Morgan Stanley Wealth Management. "Judging from the initial reaction from the market, investors appear to be breathing a sigh of relief after months of rising inflation data."

This week's inflation data - the agricultural price index released by the Bureau of Labor Statistics on Tuesday - is expected to keep the Fed on hold when it holds a policy meeting later this month.

While markets cheered the CPI release, the news was less positive for workers: Inflation-adjusted earnings fell 0.1% for the month, the Bureau of Labor Statistics said in a separate release , a year-on-year increase of only 1%.

Other details in the inflation report were mixed.

Used car and truck prices rose 1.2%, while new car prices also rose 0.5%. Transportation services increased by 0.5%, a year-on-year increase of 7.3%; egg prices increased by 3.2%, with an annual increase of 36.8%. Auto insurance rose 0.4%, for an annual growth rate of 11.3%.

"Inflation rates are currently grappling with 'last mile' issues, and progress in reducing price pressures has slowed," said Sung Won Sohn, a professor at Loyola Marymount University and chief economist at SS Economics. "The main drivers of inflation factors, including gas, food, vehicles and housing, remain ongoing challenges. However, there are signs that longer-term inflationary pressures may continue to ease, helped by slowing trends in key sectors such as housing and labor costs."

The report comes amid jitters over the state of inflation and the Fed's potential response. Tariffs and mass deportations promised by President-elect Donald Trump have heightened concerns about inflation.

Job growth in December was much stronger than economists expected, adding 256,000 jobs, further raising concerns that the Fed could remain on hold for an extended period or even consider a scenario where inflation is worse than expected. Rate hike.

The December consumer price index report, coupled with relatively soft data on wholesale prices on Tuesday, showed that while inflation has not cooled significantly, it is also showing no signs of reaccelerating.

A separate report from the New York Fed on Wednesday showed weak manufacturing activity but a sharp increase in prices paid and received.

Futures pricing continues to suggest the Fed will keep rates on hold at its Jan. 28-29 meeting, but prefers two rate cuts throughout the year (assuming a 25 percentage point cut), according to CME Group data. Markets expect the next rate cut could happen in May or June.

The Fed uses the Commerce Department's personal consumption expenditures price index as its primary predictor of inflation. However, CPI and PPI indicators are factored into this calculation.

Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said the two figures could mean core PCE will grow just 0.2% in December, leaving the annual rate at 2.8%.