U.S. Consumer Prices Likely Rebounded After Government Shutdown Distortions

U.S. consumer prices are expected to have accelerated in December as distortions linked to the government shutdown, which had artificially restrained inflation in November, began to unwind. Such a rebound would reinforce expectations that the Federal Reserve will leave interest rates unchanged at its upcoming meeting.

The 43-day government shutdown disrupted price collection for October, prompting the Bureau of Labor Statistics to rely on a carry-forward imputation method when compiling the November consumer price index. This approach, which treated October prices as unchanged, was particularly applied to rents and other categories. While prices for November were eventually collected, this occurred largely in the second half of the month, a period when many retailers were offering seasonal holiday discounts.

These distortions were most evident in rent measures and goods prices. The expected acceleration in consumer inflation follows recent data showing that the unemployment rate declined in December even as overall job growth remained subdued.

“We expect the CPI report to show a meaningful payback after the collection issues caused by the government shutdown,” said Oscar Munoz, chief U.S. macro strategist at TD Securities. “However, we will not see a full reversal in consumer prices yet, as the adjustment in rents will not occur until the April 2026 report.”

Consumer prices are forecast to have risen by 0.3% in December, driven by higher food and energy costs, with electricity prices playing a significant role due to demand from data centers. Over the 12 months through December, headline CPI is expected to have increased by 2.7%, matching the pace recorded in November.

The Bureau of Labor Statistics estimated that CPI rose by 0.2% from September through November. Under the carry-forward method, October prices were assumed to be unchanged during that period. Elevated inflation has weighed on President Donald Trump’s approval ratings and is expected to remain a key political issue in 2026 as Trump and fellow Republicans seek to maintain control of the U.S. Congress.

Broad-Based Price Increases Anticipated

Economists expect price pressures to intensify across a wide range of categories, particularly for goods such as new motor vehicles, furniture, and apparel. At the same time, the softer trend in rents is likely to have persisted. The Bureau of Labor Statistics calculates rent and owners’ equivalent rent using a six-month panel collection process. In late December, the agency said that the effects of the carry-forward imputation method used in October 2025 would be resolved in April 2026, when that housing panel is surveyed again.

For November, the BLS estimated one-month changes in rent and owners’ equivalent rent by taking the sixth root of the six-month price change for the sample collected during that month, then applying it to the October index level to derive November’s figures.

Setting aside the shutdown-related distortions, economists expect the December CPI report to reflect the gradual pass-through of President Trump’s sweeping tariffs into higher prices, a trend that was already present before the shutdown. Businesses have so far absorbed part of the increased import duties, limiting the immediate impact on consumers.

“The rebound in goods prices is likely to be more pronounced than in services, given the greater prevalence of holiday discounting in goods,” said Sarah House, a senior economist at Wells Fargo. “That said, services prices should also bounce back in December, especially in more seasonally sensitive areas such as lodging away from home and airfares.”

Excluding the volatile food and energy components, core CPI is forecast to have increased by 0.3% in December. On a year-over-year basis, core inflation is expected to have risen 2.7%, up from 2.6% in November. The Bureau of Labor Statistics previously estimated that core CPI rose 0.2% between September and November.

While the Federal Reserve targets 2% inflation using the Personal Consumption Expenditures price index, the central bank is widely expected to keep its benchmark overnight interest rate unchanged in the 3.50%–3.75% range at its January 27–28 meeting. Escalating tensions between Fed Chair Jerome Powell and President Trump have led most economists to rule out a rate cut before Powell’s term expires in May. The Trump administration has opened a criminal investigation into Powell, a move the Fed chair has described as a “pretext” aimed at influencing monetary policy.

“We are facing a lot of manufactured uncertainty coming out of Washington, and that is clearly not good for the economy,” said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University. “Ultimately, that kind of uncertainty could lead to higher inflation. While low interest rates are desirable, this is not the way to achieve them.”