The Inflation “Split Screen”: What December’s CPI Numbers Really Mean
Inflation Stable. The latest data is in, and it paints a picture of an economy caught between cooling pressures and political friction. In December, consumer prices rose 2.7% from a year earlier—holding steady from November and landing exactly where economists predicted.
While the “headline” number suggests stability, the story beneath the surface is much more complex. Here are the key takeaways from the final inflation report of 2025.
1. Stability Amidst the Noise
For the second month in a row, inflation has leveled off at 2.7%. Meanwhile, “Core CPI” (which strips out volatile food and energy costs) rose 2.6%.
Interestingly, these numbers came in slightly better than the 2.8% core increase some experts feared. This suggests that despite the introduction of steep tariffs earlier in 2025, businesses haven’t yet passed the full weight of those costs onto consumers. However, the “last mile” of the journey back to the Fed’s 2% target remains stubbornly out of reach.
2. A Cloud of Data Uncertainty
This report is the first “clean” look at inflation we’ve had in months. Following a government shutdown last fall, the Labor Department had to rely on technical workarounds to fill data gaps.
- The “Payback” Effect: Many economists believe November’s figures may have been artificially low due to those data collection issues.
- The Verdict: While December’s numbers didn’t spike as much as feared, they likely reflect a correction for the missing data from previous months.
3. The Fed’s High-Stakes Balancing Act
The Federal Reserve is currently navigating a “split screen” economy. On one hand, growth remains solid; on the other, the labor market has cooled significantly. In fact, 2025 saw the lowest pace of job growth since 2003 (excluding major recessions).
The Fed cut rates three times at the end of 2025 to support the job market, but officials are now divided. With inflation still above 2%, some are hesitant to keep cutting—especially as they watch for the inflationary impact of the One Big Beautiful Bill Act and ongoing investments in AI.
4. Politics vs. Policy
Perhaps the most unusual backdrop to this report is the unprecedented political pressure on independent agencies.
- The Labor Department: Its commissioner was fired in August amidst claims of “rigged” numbers.
- The Fed: Chair Jerome Powell recently alleged that the administration has used threats of criminal prosecution to pressure the board into lowering interest rates.
What’s Next?
As we head into 2026, all eyes are on January and February. This is traditionally when businesses reset their pricing for the year. Whether they will hike prices to account for tariffs and tax-cut-driven demand remains the big question.
For now, the “meandering path” toward lower inflation continues, but with a cooling job market and political volatility, the road ahead looks anything but smooth.
December CPI: Actual vs. Expected
| Measure | Actual | Expected | Status |
| Headline CPI (Year-over-Year) | $2.7\%$ | $2.7\%$ | In Line |
| Core CPI (Year-over-Year) | $2.6\%$ | $2.8\%$ | Lower than Expected |
| Headline CPI (Month-over-Month) | $0.3\%$ | $0.3\%$ | In Line |
| Core CPI (Month-over-Month) | $0.2\%$ | $0.3\%$ | Lower than Expected |