U.S. inflation seen picking up as shutdown distortions fade

U.S. consumer prices likely accelerated in December as temporary distortions caused by last year’s government shutdown began to unwind, reinforcing expectations that the Federal Reserve will keep interest rates unchanged this month, according to economists cited by Reuters.

A 43-day government shutdown disrupted data collection in October, forcing the Bureau of Labor Statistics (BLS) to rely on a carry-forward method—particularly affecting rent data—when compiling November’s inflation report. While prices were eventually gathered later in November, much of the data reflected holiday discounting, which likely muted inflation readings.

Economists now expect a rebound. “We expect the CPI report to show a meaningful payback after collection issues, due to the government shutdown,” said Oscar Munoz, chief U.S. macro strategist at TD Securities. “We won't see the full reversal in consumer prices, however, since the payback in rents will have to wait until the April 2026 report.”

A Reuters survey forecasts the consumer price index (CPI) rose 0.3 percent in December, driven by higher food and energy prices, particularly electricity linked to data center demand. Annual inflation is projected at 2.7 percent, unchanged from November.

Price pressures are also expected to broaden across goods such as vehicles, furniture, and apparel, while services inflation may rebound in travel-related categories. “The rebound in goods prices is likely to be more pronounced than in services given the sector's wider prevalence of holiday discounting,” said Sarah House, senior economist at Wells Fargo.

Excluding food and energy, core inflation is also expected to rise 0.3 percent in December, with annual core CPI ticking up to 2.7 percent.

The Federal Reserve, which targets 2 percent inflation using a separate price index, is widely expected to hold rates steady at its January 27–28 meeting. Political tensions surrounding inflation remain high, with economists warning that policy uncertainty could worsen price pressures. “We have a lot of manufactured uncertainties generated by Washington, that is obviously not good for the economy,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University.