Economists polled by Reuters had expected the CPI to gain 0.3% and increase 2.9% annually.
Progress to return inflation to the US central bank’s 2% target stalled in the second half of last year.
A resilient economy, the threat of broad tariffs on imported goods and mass deportations of undocumented immigrants – actions seen as inflationary – have also led the US central bank to project a less aggressive path of rate cuts this year.
The incoming administration of President-elect Donald Trump has also promised tax cuts, which would boost the economy.
Consumer inflation expectations soared in January as households fear tariffs will drive up prices of goods.
Excluding the volatile food and energy components, the CPI rose 0.2% in December. The so-called core CPI had increased 0.3% for four consecutive months. In the 12 months to December, the so-called core CPI rose 3.2% after rising 3.3% in November.
No rate cut is expected at the Federal Reserve’s January 28-29 policy meeting. Although economists expect fewer rate cuts this year, they are divided over whether the central bank will cut borrowing costs again before the second half of the year.
Goldman Sachs expects two rate cuts this year, in June and December, a figure revised down from three. Bank of America Securities believes the Fed’s easing cycle is over.
The central bank began its easing cycle in September and has lowered its benchmark overnight interest rate by 100 basis points, to the current range of 4.50% to 4.75%.
The last drop was in December, when policymakers also forecast two rate cuts this year instead of the four they had forecast in September.
