US Core Inflation Rate YoY Holds Steady at 2.60% in December 2025
The US Core Inflation Rate YoY for December 2025 was released on January 13, 2026, registering a steady 2.60%, matching November's figure and slightly below the consensus estimate of 2.70%, according to the Sigmanomics database. This stability follows a period of gradual easing from the summer peak of 3.10% seen in August and September 2025. The persistence of core inflation at this level signals ongoing price pressures in the US economy, with important implications for monetary policy and financial markets.
Table of Contents
- Big-Picture Snapshot
- Foundational Indicators
- Chart Dynamics
- Forward Outlook
- Closing Thoughts
- Key Markets Likely to React to Core Inflation Rate YoY
The US Core Inflation Rate YoY for December 2025 remained unchanged at 2.60%, consistent with November’s reading and marking a notable decline from the 3.10% peak recorded in August and September 2025. This figure is below the 12-month average of approximately 2.90% over the past year, reflecting a gradual easing of inflationary pressures since mid-2025.
Drivers this month
- Shelter costs continued to exert upward pressure, contributing approximately 0.18 percentage points.
- Used vehicle prices showed modest declines, subtracting about 0.05 percentage points.
- Core goods inflation remained subdued, while services inflation held steady.
Policy pulse
The 2.60% core inflation rate remains above the Federal Reserve’s 2% target, sustaining the case for a cautious monetary stance. The Fed is likely to maintain elevated interest rates in the near term to anchor inflation expectations.
Market lens
Immediate reaction: The US dollar index (DXY) strengthened by 0.30% in the hour following the release, while 2-year Treasury yields rose modestly by 5 basis points, reflecting renewed expectations of persistent Fed tightening.
Core inflation is a critical gauge of underlying price trends, excluding volatile food and energy components. The December 2025 reading of 2.60% YoY aligns with the Fed’s gradual disinflation narrative but underscores persistent price stickiness in key sectors.
Monetary Policy & Financial Conditions
The Federal Reserve has maintained its policy rate in the 5.00%-5.25% range since late 2025, aiming to balance inflation control with economic growth. Financial conditions remain moderately tight, with credit spreads slightly elevated and mortgage rates hovering near 7%, constraining housing affordability and demand.
Fiscal Policy & Government Budget
Fiscal stimulus has been limited in recent quarters, with the government focusing on deficit reduction and targeted spending. The federal budget deficit narrowed to 3.20% of GDP in Q4 2025, reducing inflationary fiscal pressures but limiting growth support.
External Shocks & Geopolitical Risks
Global supply chain disruptions have eased, but geopolitical tensions in Eastern Europe and East Asia continue to pose risks to commodity prices and trade flows. Energy prices remain volatile, though core inflation excludes these directly.
This chart highlights a stabilization in core inflation after a multi-month decline. The plateau at 2.60% signals that inflation is not yet fully subdued, implying that monetary policy may need to remain restrictive to achieve the Fed’s target. The trend suggests a cautious approach to rate cuts in the near term.
Market lens
Immediate reaction: Following the print, the red USDEUR currency pair saw a 0.20% appreciation of the USD, while the red SPX index dipped 0.40%, reflecting investor concerns about prolonged Fed tightening.
Looking ahead, the core inflation trajectory will be shaped by several factors, including monetary policy decisions, labor market dynamics, and external shocks. The Fed’s commitment to a 2% inflation target suggests that rates will remain elevated until clear disinflation is evident.
Bullish scenario (20% probability)
Core inflation falls below 2.30% by mid-2026 due to easing wage pressures and improved supply chains, prompting the Fed to begin rate cuts in Q3 2026. This scenario supports stronger equity markets and a softer USD.
Base scenario (60% probability)
Core inflation remains around 2.50%-2.70% through mid-2026, with the Fed maintaining current rates until late 2026. Growth slows moderately, and markets price in a gradual easing of financial conditions.
Bearish scenario (20% probability)
Core inflation unexpectedly rises above 3% due to wage acceleration or supply shocks, forcing the Fed to hike rates further. This triggers market volatility, USD strength, and pressure on risk assets.
The December 2025 core inflation rate of 2.60% underscores the persistent challenge facing US policymakers. While inflation has eased from its summer highs, it remains above target, necessitating a cautious approach from the Federal Reserve. Financial markets have priced in this uncertainty, with moderate volatility expected as new data arrives. Investors and policymakers alike should monitor wage trends, supply chain developments, and geopolitical risks closely to gauge the inflation outlook.
Key Markets Likely to React to Core Inflation Rate YoY
The core inflation rate is a bellwether for monetary policy and financial conditions, influencing a range of markets. The following symbols historically track inflation trends and Fed policy shifts closely:
- SPX – The S&P 500 index reacts to inflation data through shifts in interest rate expectations and corporate earnings forecasts.
- USDEUR – The USD/EUR currency pair is sensitive to US inflation prints, reflecting relative monetary policy divergence.
- USDCAD – The USD/CAD pair often moves with oil prices and inflation expectations in North America.
- BTCUSD – Bitcoin’s price can reflect investor sentiment on inflation and real yields.
- TLT – The iShares 20+ Year Treasury ETF tracks long-term bond yields, which are influenced by inflation expectations.
Since 2020, the SPX index and core inflation rate have shown an inverse relationship during Fed tightening cycles. Inflation spikes often precede market corrections, while easing inflation supports equity rallies. Monitoring this dynamic helps anticipate market turning points.
FAQ
- What is the significance of the Core Inflation Rate YoY?
- The Core Inflation Rate YoY measures the annual change in prices excluding food and energy, providing a clearer view of underlying inflation trends.
- How does the Core Inflation Rate affect monetary policy?
- It guides the Federal Reserve’s decisions on interest rates, as persistent inflation above 2% typically leads to tighter policy to contain price pressures.
- Why is the December 2025 reading important?
- It confirms the inflation trend heading into 2026, influencing market expectations and the Fed’s policy path for the year.
Key takeaway: The US core inflation rate’s steady 2.60% reading in December 2025 signals persistent price pressures, supporting a cautious Fed stance and continued market volatility.
This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.
The December 2025 core inflation rate of 2.60% YoY held steady from November’s 2.60%, marking a plateau after a downward trend from the summer peak of 3.10% in August and September. This figure is below the 12-month average of 2.90%, indicating a moderate easing of inflationary pressures over the past year.
Monthly comparisons show a stable core inflation rate, with no significant acceleration or deceleration. The persistence of inflation near 2.60% suggests that while price pressures are contained, they remain above the Federal Reserve’s 2% target, complicating the policy outlook.