North America Inflation Rate YoY: December 2025 Analysis and Outlook
The latest inflation rate year-over-year (YoY) for North America, released on December 4, 2025, shows a moderation to 3.40%, down from 3.60% in November. This report draws on data from the Sigmanomics database and compares recent trends with historical readings to assess the macroeconomic implications. We explore core indicators, monetary and fiscal policy responses, external risks, and market sentiment to provide a forward-looking perspective on inflation dynamics in the region.
Table of Contents
The North American inflation rate YoY for December 2025 registered at 3.40%, slightly below market expectations of 3.60% and down from 3.60% in November. This marks a continuation of the downward trend since the summer peak of 3.70% in July. The moderation reflects easing pressures in key sectors such as energy and shelter, though core inflation remains sticky. The current rate remains above the Federal Reserve’s 2% target, indicating persistent inflationary challenges.
Drivers this month
- Shelter costs contributed 0.15 percentage points (pp), down from 0.22 pp in November.
- Energy prices declined, subtracting -0.10 pp from the headline rate.
- Used vehicle prices stabilized, contributing near zero change.
Policy pulse
The 3.40% inflation rate remains above the central bank’s target, sustaining pressure on monetary authorities to maintain restrictive policy. The Federal Reserve’s benchmark rate currently stands at 5.25%, with markets pricing in a high probability of a pause in hikes but no imminent cuts.
Market lens
Immediate reaction: The US dollar index (DXY) strengthened by 0.30% within the first hour post-release, reflecting a hawkish interpretation. Short-term Treasury yields rose modestly, with the 2-year yield up 5 basis points, signaling continued expectations of tight policy.
Examining core macroeconomic indicators alongside inflation reveals a complex picture. Wage growth remains robust at 4.10% YoY, supporting consumer spending but also sustaining inflationary pressures. Unemployment in North America holds steady at 3.70%, near historic lows, indicating a tight labor market. Consumer Price Index (CPI) components show mixed signals, with food prices up 4.20% YoY and medical care inflation steady at 3.00%.
Monetary policy & financial conditions
The Federal Reserve’s ongoing restrictive stance, with a policy rate above neutral, aims to temper demand. Financial conditions have tightened, reflected in higher borrowing costs and reduced liquidity. Credit spreads remain stable but elevated compared to early 2025, signaling cautious risk appetite.
Fiscal policy & government budget
Fiscal policy remains moderately expansionary, with government spending up 2.50% YoY, supporting infrastructure and social programs. However, rising debt service costs due to higher interest rates constrain discretionary spending. The budget deficit is projected at 4.10% of GDP for 2025, slightly higher than the 3.80% recorded in 2024.
Chart insight
The chart highlights a clear inflection point starting September 2025, where inflation began to decelerate after a period of volatility. The trend suggests a gradual return toward the central bank’s target zone, though risks of renewed upward pressure remain if wage growth or supply constraints intensify.
What This Chart Tells Us: Inflation is trending downward, reversing a two-month rise, but remains above target. The path ahead depends on energy prices and wage dynamics.
Market lens
Immediate reaction: US Treasury 2-year yields rose 5 basis points, reflecting sustained hawkish sentiment. The Canadian dollar (USDCAD) appreciated 0.20%, signaling confidence in North American economic resilience despite inflation moderation.
Looking ahead, inflation in North America faces a mix of upside and downside risks. The baseline scenario projects inflation easing to 3.00% by mid-2026 as monetary policy effects deepen and supply chains normalize. This scenario carries a 55% probability.
Bullish scenario (30% probability)
- Energy prices fall sharply due to global supply improvements.
- Wage growth slows as labor market softens.
- Inflation falls below 2.50% by Q3 2026, enabling rate cuts.
Bearish scenario (15% probability)
- Geopolitical tensions disrupt energy supplies, pushing prices higher.
- Persistent wage inflation keeps core prices elevated.
- Inflation remains above 3.50%, forcing further rate hikes.
External shocks & geopolitical risks
Heightened geopolitical risks, including supply chain disruptions from ongoing conflicts and trade tensions, could reignite inflationary pressures. Commodity price volatility remains a key vulnerability.
In summary, North America’s inflation rate YoY at 3.40% signals a modest easing but remains above the central bank’s comfort zone. Monetary policy is likely to stay restrictive in the near term, balancing growth and inflation risks. Fiscal policy provides moderate support but is constrained by rising debt costs. External shocks and labor market dynamics will be critical to watch as they could sway the inflation trajectory.
Structural & long-run trends
Longer-term inflation expectations remain anchored near 2%, supported by credible central bank frameworks. However, structural factors such as demographic shifts, technological change, and climate-related supply constraints could introduce new inflation dynamics over the next decade.
Key Markets Likely to React to Inflation Rate YoY
Inflation data significantly influences interest rates, currency valuations, and equity markets in North America. Traders and investors closely monitor these releases to adjust positions in fixed income, forex, and stocks sensitive to inflation trends.
- SPY – Tracks broad US equity market, sensitive to inflation-driven monetary policy changes.
- USDCAD – Currency pair reflecting North American economic and inflation differentials.
- TLT – Long-term Treasury ETF, reacts to inflation expectations and rate outlook.
- BTCUSD – Bitcoin often viewed as an inflation hedge, sensitive to macroeconomic shifts.
- EURUSD – Major currency pair influenced by comparative inflation and policy moves.
Inflation Rate YoY vs. SPY Since 2020
Since 2020, the North American inflation rate YoY and the SPY ETF have shown an inverse relationship during periods of rising inflation. For example, spikes in inflation in 2021 and 2022 corresponded with SPY volatility and corrections. The recent moderation in inflation to 3.40% coincides with a rebound in SPY, suggesting easing inflation supports equity market gains. This dynamic underscores the importance of inflation data in shaping investor sentiment and asset allocation.
FAQs
- What is the current North America Inflation Rate YoY?
- The latest inflation rate YoY for North America is 3.40% as of December 2025.
- How does the inflation rate affect monetary policy?
- Higher inflation typically prompts central banks to raise interest rates to cool demand, while lower inflation may allow for easing.
- What are the main drivers of inflation in North America?
- Key drivers include shelter costs, energy prices, wage growth, and supply chain factors.
Key takeaway: North America’s inflation rate is easing but remains above target, keeping monetary policy tight and markets cautious amid external risks.
Sources
- Sigmanomics database, Inflation Rate YoY North America, December 2025 release.
- Federal Reserve Economic Data (FRED), US Labor Market and CPI statistics.
- North American Government Budget Reports, 2024-2025.
- Market reaction data from Bloomberg and Reuters, December 4, 2025.
SPY – Broad US equity market ETF, sensitive to inflation and monetary policy changes.
USDCAD – Currency pair reflecting North American inflation and economic differentials.
TLT – Long-term Treasury ETF, reacts to inflation expectations and interest rate outlook.
BTCUSD – Bitcoin, often viewed as an inflation hedge and macroeconomic sentiment barometer.
EURUSD – Major currency pair influenced by comparative inflation and central bank policies.
The December 2025 inflation rate of 3.40% compares to 3.60% in November and a 12-month average of 3.50%. This downward shift continues a gradual easing trend from the summer peak of 3.70% in July. The moderation is primarily driven by lower energy costs and a slowdown in shelter inflation.
Historical comparisons show that the current 3.40% level remains elevated relative to the 2.10% average seen from 2020 to 2023, underscoring persistent inflationary pressures despite recent improvements.