Consumer price growth accelerated in December, suggesting that President-elect Donald Trump, who re-enters the White House next week, will inherit the inflation problems that plagued the Biden administration.
The Bureau of Labor Statistics reported Wednesday that the annual inflation rate, calculated based on prices compared to a year ago, rose to 2.9% from 2.7% in November.
On a monthly basis, the rate was 0.4%, up from 0.3% the previous month and exceeding expectations.
Measures that exclude volatile food and gas items rose less than expected, even as broader inflation measures rose. The so-called “core” reading is closely monitored by investors.
Stock futures soared after the report’s release, with the Dow Jones Industrial Average rising nearly 700 points and the S&P 500 and Nasdaq expected to rise more than 1.5%.
Traders were also encouraged by the “shelter in place” category, which posted its smallest 12-month gain since January 2022. This factor, which measures some changes in rental price growth, has not seen a meaningful decline for months.
Some market analysts said the unexpected core numbers in Wednesday’s report signaled a volatile situation with the Trump presidency.
“Markets are likely to be confused over the next few data releases as investors are looking for a reassuring narrative, not just for a few days at a time,” said Seema Shah, chief strategist at Principal Asset Management. said in a note. .
On Friday, the BLS reported that the country added 256,000 jobs last month, significantly higher than expected, suggesting that U.S. economic growth is not only steady but could get even hotter. It shows that.
Trump’s reelection was also aimed at maintaining the economic momentum established during the Biden administration. The evidence is in gross domestic product (GDP) numbers that continue to exceed expectations and stock prices that soar to all-time highs.
But that growth came at the cost of several years of soaring inflation, not to mention higher U.S. borrowing costs and higher interest rates for consumers.
If these conditions continue, President Trump’s economic policy direction could be reversed, and many mainstream economists say it could lead to further price increases.
“While markets initially celebrated the election results, there was less internal party festivity than there was in 2016-17,” BCA Research said in a note to clients on Monday. “The macro environment is not as forgiving of deportations, reflation, and tariffs as it was eight years ago, and the next government could face a tougher situation than the first one.”
Markets responded to the threat of further price increases by punishing stock and bond investors alike. The initial rise in stock prices following President Trump’s election in November has almost completely disappeared.
Meanwhile, U.S. borrowing costs, already under pressure from a surge in bond issuance, have reached new highs with the Federal Reserve signaling that it intends to keep raising key interest rates in response to the threat of further price increases. are.
President Trump’s tariff threats have particularly fueled these concerns, with some analysts saying some consumers may be bringing forward purchases in anticipation of the trade tax, already driving up prices. Suggests.
“Recent economic strength, combined with the growing threat of tariffs, increases upside risks to inflation,” Principal Asset Management’s Shah said in a separate note ahead of Wednesday’s announcement. said.
Not all sectors of the economy are showing strength. The white-collar sector, reflected in the business and professional services component of the Labor Survey, has added little net new employment over the past 18 months. Employment growth in the manufacturing industry has also stagnated.
And not all economists are expressing strong concerns about new price increases resulting from President Trump’s planned policies, or that they will result in unexpected interest rate hikes from the Fed.
“We do not expect changes in fiscal or immigration policy to significantly boost inflation, nor do we expect much smaller tariffs to be sufficient to justify rate hikes without upsetting stock markets.” “We believe it is difficult to envision tariffs increasing inflation in 2019,” Goldman Sachs chief economist Jan Hatzius wrote in a recent note.
However, overall sentiment remains cautious as there are hopes for further “disinflation,” or a slowdown in the rate of inflation, which is Mr. Trump’s most desired condition.
“We expect disinflation to be more moderate going forward,” Bank of America analysts said in a note to clients this week.