US consumer prices likely snapped back after being restrained by government shutdown distortions

WASHINGTON, Jan 13 (Reuters) – U.S. consumer prices likely accelerated in December as some distortions from the government shutdown that artificially lowered inflation in November faded; This strengthened expectations that the Fed would leave interest rates unchanged this month.

The 43-day shutdown prevented the collection of prices for October, and as a result the Bureau of Labor Statistics used a carryover method to carry forward data specifically on rents to compile November’s ‌CPI report. Although November prices picked up, it didn’t happen until the second half of the month when retailers offered holiday season discounts.

Distortions in rent measurements and commodity prices were common. The expected recovery in consumer inflation follows last week’s news that the unemployment rate fell in December, although employment growth was slow.

“We expect the CPI report to show a meaningful refund following collection issues due to the government shutdown,” said Oscar Munoz, U.S. macro strategist at TD Securities. “However, we will not see a full return to consumer prices as the refund on rents will have to wait until the April 2026 report.”

CPI rose 0.3% last month, likely driven by higher food and energy prices (mostly electricity from data centres), a Reuters survey of economists estimated. In the 12 months to December, CPI is expected to increase by 2.7%, matching the increase in November.

The BLS estimated that the CPI rose 0.2% from September through November. October prices remained unchanged in the carry forward method. High inflation has eroded President Donald Trump’s approval ratings and will remain a political hot button in 2026 as Trump and his fellow Republicans fight to maintain control of the US Congress.

A LARGE INCREASE IN PRICES IS EXPECTED

Economists had expected a rise in prices, especially for goods such as new motor vehicles, furniture and clothing, but the weak trend in rents likely continued. BLS calculates rents and owners’ equivalent rent using 6-month panel collections. In late December, it was stated that “the effects of the forward carry method used in October 2025 will be resolved by April 2026 with the reuse of the residential panel.”

The BLS estimated the one-month price change for rent and owners’ equivalent rent using the sixth root of the 6-month price change for the sample collected in November, which was then used to derive the index level for that month relative to the October index level.

Apart from the distortions caused by the shutdown, economists expect the November CPI report to show that Trump’s sweeping tariffs are gradually reflected in the high inflation that prevailed before the longest shutdown on record. Businesses largely bore some of the import taxes.

“Given the prevalence of holiday sales across the industry, the recovery in goods prices is likely to be more pronounced than in services prices,” said Sarah House, senior economist at Wells Fargo. “Price growth for services should also see a rebound in December, particularly in the more seasonally sensitive categories of accommodation away from home and airfares.”

Excluding volatile food and energy components, CPI is expected to increase by 0.3% in December. The index, called Core CPI, was expected to increase by 2.7% on an annual basis in December, following the 2.6% increase in November. The BLS estimated that core CPI rose 0.2% from September through November.

The Fed tracks Personal Consumption Expenditure Price indexes for its 2% inflation target. The US central bank is expected to keep the benchmark overnight interest rate in the range of 3.50%-3.75% at its meeting on January 27-28.

Rising tensions between Fed Chairman Jerome Powell and Trump have led most economists not to expect a rate cut before Powell’s term ends in May. The Trump administration launched a criminal investigation into Powell, which the Fed chairman called an “excuse” to influence rates.

“There’s a lot of manufactured uncertainty that Washington has produced, and that’s obviously not good for the economy, and I think ultimately that could lead to higher inflation,” said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University. “We want low interest rates, but this is not the way to do it.”

(Reporting by Lucia Mutikani, Editing by Nick Zieminski)