December CPI Seen as First ‘Clean’ Inflation Read Since Shutdown, With Fed Cuts at Stake

When the Labor Department’s latest snapshot of consumer prices goes live at 8:30 a.m. Eastern time Tuesday, it will be more than just another inflation report. For the first time in months, policymakers and investors will see a full month of U.S. inflation data that was not scrambled by a federal government shutdown that sidelined much of the statistical system last fall.

The December 2025 Consumer Price Index—covering prices paid by urban consumers for everything from rent and groceries to airline tickets—is scheduled for release by the Bureau of Labor Statistics. Economists expect a modest pickup in price pressures after unusually soft readings in the autumn, a “snap back” that will help determine how quickly the Federal Reserve continues cutting interest rates in 2026.

Why this CPI print matters

The report arrives at a delicate moment. The Fed, which lowered its benchmark interest rate three times in 2025, meets Jan. 27–28 to set policy for the first half of the year. Investors are betting inflation is close enough to the central bank’s 2% target to justify more cuts. But the data the Fed has relied on recently were distorted by a 43‑day lapse in federal funding that left statisticians unable to collect prices for an entire month.

“This is the first truly clean CPI print we’ve had since the shutdown,” said one Wall Street economist. “It will tell us whether inflation really cooled in late 2025, or whether the softness we saw was just an artifact of missing data.”

Economists surveyed by private data providers generally expect overall consumer prices in December to be about 2.6% higher than a year earlier, with core prices that exclude food and energy up around 2.7%. Both headline and core indexes are forecast to rise 0.3% from November, on a seasonally adjusted basis.

Those forecasts would keep inflation running below the peaks of 2022 but still slightly above the Fed’s goal—and faster than many households feel they can comfortably absorb.

How the shutdown distorted the numbers

Even before the latest report, the shutdown had left an unusually jagged pattern in the official figures.

The federal government partially closed Oct. 1 after Congress failed to pass spending bills, and it did not fully reopen until Nov. 12. During that period, the Labor Department said, “most CPI operations, including data collection, were suspended.”

That meant no prices were gathered for the October 2025 reference period. Instead, BLS relied on an imputation procedure that carried forward September prices for most goods and services into October. For rents and owners’ equivalent rent—housing measures that account for more than a third of the core CPI—the agency used rents collected back in April 2025 and rolled them forward to October, effectively forcing those components to show no change that month.

Because the agency considered the resulting figures too artificial to present as a standalone reading, it did not publish an October CPI news release at all—rare in modern economic statistics.

When data collection resumed Nov. 14, November price indexes were calculated by comparing newly collected November prices with the carried‑forward October values, which in most cases were identical to September levels. The November report therefore described the change in overall consumer consumer prices as a 0.2% increase “over the 2 months from September 2025 to November 2025.” Year over year, headline inflation slowed to 2.7%, with core inflation at 2.6%.

BLS has acknowledged that its carry‑forward method affects the numbers. In a technical note on the shutdown, the agency said that in times of generally rising prices, using the previous observation as a stand‑in for a missing month “may result in an underestimation” of inflation. Officials said they chose the approach because it was already documented and built into their systems, and because making more judgmental adjustments on short notice could raise questions about manipulation.

What economists will look for in December

The November figures, along with other recent data, encouraged investors to expect more rate cuts as inflation appeared to drift lower. But analysts warned that the muted readings might not fully reflect actual price pressures, particularly in housing.

“The shutdown‑related imputations probably held down measured inflation, especially in rents,” one research note from a major bank said. “December will be our first real chance to see whether that softness was genuine.”

In the November report, the index for shelter was up 3.0% from a year earlier. Food prices were 2.6% higher than a year before, with groceries up 1.9% and restaurant meals 3.7% higher. Energy prices rose 4.2% over the 12 months, including an 11.3% jump in fuel oil and a 6.9% increase in electricity.

A monthly increase of 0.3% in December—the consensus forecast—would translate to an annual rate of roughly 3.5% if sustained, faster than the Fed’s target and enough to keep pressure on renters and low‑income families.

Forecasters say the details of Tuesday’s release will matter as much as the headline rate. Key areas:

• Shelter inflation: Watch for a more pronounced slowdown in official measures, which have remained stubborn even as market rents have cooled.
• Energy and electricity: Some analysts point to strong power demand from data centers as a factor supporting higher utility bills.
• Goods prices: Used cars, apparel and electronics could show “statistical catch‑up” after autumn discounts and shutdown distortions.

If the November reading undercounted actual inflation, some of that could surface in December’s monthly increase.

The Fed’s decision window

For the Federal Reserve, the timing is sensitive. At its Dec. 10 meeting, the Federal Open Market Committee approved its third consecutive quarter‑point rate cut, lowering the federal funds target range to 3.50% to 3.75%. Minutes of that meeting showed divisions: one policymaker argued for a larger half‑point cut, while two favored leaving rates unchanged.

In a speech on Jan. 12, New York Federal Reserve Bank President John Williams said monetary policy was “well positioned amid a favorable outlook” and described the current stance as “closer to neutral” after last year’s easing. He said officials still expect inflation to move “gradually” back to 2% over the next couple of years and indicated there was no need for immediate additional cuts.

Futures tied to the Fed’s benchmark rate suggest expectations for one or two modest reductions in 2026, rather than the series of deep cuts investors once hoped for—contingent on inflation staying contained.

A hotter‑than‑expected December CPI—for example, a 0.4% or higher monthly gain, or a surprise acceleration in shelter and core services—would likely strengthen the case for pausing further easing. A cooler reading, especially if the yearly rate dips closer to 2.5% and key service categories soften, could revive talk of an earlier cut.

Political pressure and lingering data effects

The statistics land against a backdrop of heightened political scrutiny of the central bank. The Fed has faced Justice Department subpoenas over a multibillion‑dollar renovation of its Washington headquarters, an inquiry Chair Jerome Powell has privately suggested is intended to pressure the institution. Williams and other officials have defended the importance of Fed independence, warning that efforts to intimidate the central bank or question its motives could damage economic performance.

The shutdown itself was the product of partisan conflict over appropriations, a reminder that political brinkmanship can ripple far beyond Washington. This time, it not only disrupted federal workers and contractors but also compromised the tools the country uses to understand its own economy.

The aftereffects will not end with Tuesday’s report. Because the housing component of CPI is based on a rolling six‑month sample of rents, the October 2025 carry‑forward will influence rent and owners’ equivalent rent indexes well into 2026. BLS has cautioned that the April 2026 shelter data, in particular, will be “atypical,” effectively compressing a 12‑month rent change into what is normally a six‑month comparison.

For now, investors, policymakers and households are focused on one number. After months of “extremely muddy” data, as some economists have described it, December’s CPI will offer the clearest recent reading on where inflation stands—and help decide how quickly the Fed can move from fighting high prices to worrying about growth.