US consumer prices likely rebounded after being dampened by government shutdown distortions

WASHINGTON, Jan 13 (Reuters) – U.S. consumer prices likely accelerated in December as some of the distortions related to the government shutdown that had artificially reduced inflation in November were removed, which will cement expectations of the Federal Reserve leaving interest rates unchanged this month.

The 43-day shutdown prevented the collection of prices for October, resulting in the Bureau of Labor Statistics using a carry-forward method to impute data, especially for rents, to compile the November CPI report. While prices were collected for November, this was not until the second half of the month when retailers were offering holiday season discounts.

Distortions were prevalent in rent measures and commodity prices. The expected rise in consumer inflation followed news last week that the unemployment rate fell in December even as job growth was tepid.

“We expect the CPI report to show a significant payback after collection issues, due to the government shutdown,” said Oscar Munoz, chief US macro strategist at TD Securities. “We will not see the full reversal in consumer prices, however, as the payback in rents will have to wait until the April 2026 report.”

The CPI likely rose 0.3% last month amid higher food and energy prices, mostly electricity due to data centers, a Reuters poll of economists predicted. In the 12 months to December, the CPI is forecast to have risen 2.7%, matching November’s gains.

The BLS estimated that the CPI increased by 0.2% from September to November. The carry forward imputation method treated the October prices as unchanged. Higher inflation has dented President Donald Trump’s approval ratings and will remain a political hot button in 2026 as Trump and his fellow Republicans battle to retain control of the US Congress.

EXPECT A WIDE INCREASE IN PRICES

Economists expected an acceleration in prices, particularly for items such as new motor vehicles, furniture and clothing, although the softer bias in rents is likely to persist. The BLS calculates landlords’ rents and equivalent rent using a 6-month panel collection. He said in late December that “the effects of the port-forward imputation method utilized in October 2025 will resolve in April 2026 when that housing panel is used again.”

The BLS estimated the one-month price change for rent and owner-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 based on the October index level.

Away from the distortions of the shutdown, economists expect the November CPI report to show the gradual passage of Trump’s big tariffs to higher inflation than it had before the longest shutdown on record. Businesses have largely absorbed some of the import duties.

“The rebound in goods prices is likely to be more pronounced than in services because of the broader prevalence of holiday discounting in the sector,” said Sarah House, senior economist at Wells Fargo. “Price growth in services should also see a return in December, particularly in the more season-sensitive lodging categories away from home and airfares.”

Excluding the volatile food and energy components, the CPI is forecast to have increased by 0.3% in December. The so-called Core CPI was forecast to advance 2.7% year-on-year in December after gaining 2.6% in November. The BLS estimated that the core CPI rose by 0.2% from September to November.

The Fed tracks the Consumer Price Index for its 2% inflation target. The central bank of the United States is expected to keep the benchmark overnight interest rate in the range of 3.50%-3.75% at its meeting between January 27 and 28.

Rising tensions between Fed Chair Jerome Powell and Trump have left most economists not expecting a rate cut before Powell’s term ends in May. The Trump administration opened a criminal investigation into Powell, which the head of the Fed called a “pretext” to influence rates.

“We have a lot of manufactured uncertainties generated by Washington, which is obviously not good for the economy, and in the end, I think it can lead to higher inflation,” said Sung Won Sohn, 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)