Grocery prices rose at the fastest pace in three years, keeping pressure on household budgets even as overall inflation held steady in December.
The jump in costs highlights the challenge for the White House in the lead-up to the midterm elections. Broad inflation relief is little consolation for Americans if they aren't seeing it reflected in grocery bills.
Grocery prices (or "food at home," as the Bureau of Labor Statistics calls it) rose by 0.7% in December, the largest monthly gain since the peak inflation period in August 2022.
- Food inflation was evident at restaurants, too: Costs for dining out (or "food away from home") rose by a similar amount, the largest monthly gain in three years.
Grocery prices were up roughly 2.4% in December compared to the prior year.
- But that masks double-digit price increases for a slew of household staples over the past 12 months, including coffee (+20%), beef (+16%), and candy (+10%).
- President Trump rolled back tariffs on a slew of household staples late last year. Among them: bananas, which saw prices fall by almost 2% in December. But costs are still up roughly 6% compared to the prior year.
- There is some relief elsewhere in the grocery store: Egg prices, for instance, are down more than 20% from a year ago, with an 8% decline in December alone.
The Consumer Price Index rose 2.7% in the 12 months through December, while a key gauge excluding food and energy costs rose by 2.6%. Both measures held steady from November, remaining at a four-year low.
- Trump praised the figures on Truth Social, calling them "Great (LOW!) Inflation numbers for the USA."
Consumers have been grappling with notably higher price levels, a result of the cumulative price increases seen over the last five years.
- Consumer sentiment edged up in early January but remains at historically low levels, according to the University of Michigan. Frustrations with high prices have spilled over into Trump's approval ratings.
The food price spike signals that "for many consumers, one of the primary inflation pressure points in recent years is still a challenge," Jim Baird, chief investment officer at Plante Moran, wrote on Tuesday.
- Tariffs are not the lone factor behind food price hikes, Baird says: "A more challenging labor outlook in the U.S. has increased wages for agricultural workers and supply disruptions from disease, weather conditions, and the war in Ukraine have raised food prices globally."
Inflation is sitting well below its peak. But higher costs are still evident in grocery store checkout lines.
Wages have largely kept up with inflation since the COVID-19 pandemic started in 2020, but for many workers, it hasn’t felt like much of a win.
Price increases and pay gains have seesawed over the past five years, leaving inflation-adjusted wages roughly flat overall since 2020.
Meanwhile, inflation reached a post-pandemic peak of 9.1% in June 2022, but has since cooled. New inflation data released Tuesday shows consumer prices rose by a year-over-year rate of 2.7% in December, according to the Consumer Price Index, which tracks the prices of things people buy regularly, from groceries and rent to gasoline and medical care.
That brings it closer to the Federal Reserve’s 2% target, but even so, inflation has remained above that level since February 2021, and many households are feeling the squeeze.
Slower inflation doesn’t mean prices are falling — it means they’re rising more slowly. Since early 2020, cumulative CPI inflation has been up by roughly 25%, marking one of the fastest increases in decades. Those higher prices are now part of everyday household budgets, especially for essentials like food and housing.
“Even though inflation has moderated, prices continue to rise, keeping it a persistent source of frustration,” Stephen Kates, a financial analyst at Bankrate, tells CNBC Make It.
Wages have caught up — but only barely
After falling behind during the inflation surge, wage growth has outpaced inflation over the past two years, allowing pay to catch up by most measures. Even so, over the full period since the pandemic began, inflation-adjusted wages show little net improvement overall.
Since the first quarter of 2020, wages adjusted for CPI have been largely flat across several common measures, according to analysis from the Hamilton Project, a nonpartisan economic research group.
Those measures include the closely watched Employment Cost Index, which tracks pay changes for the same set of jobs over time, making it a useful way to see how wages are rising relative to inflation, according to the U.S. Bureau of Labor Statistics.
ECI, along with other common measures, shows the total inflation-adjusted change since early 2020:
- Employment Cost Index: –0.19%
- Median weekly earnings: +0.41%
- Average hourly earnings: +0.44%
- Total compensation, including benefits: +1.25%
Taken together, the data show that inflation-adjusted wage growth since 2020 has been close to zero.
But for many workers, “flat” wages don’t feel flat — they feel lagging. Take median weekly earnings, for instance: Inflation-adjusted pay is only slightly higher than it was five years ago, amounting to gains for some workers and little or none for many others.
Kates says those uneven outcomes become clearer when wages are broken down by income level. Wage growth for lower-paid workers has slowed more sharply than for higher earners in recent years, based on data from the Federal Reserve Bank of Atlanta. For households with less room in their budgets, slower wage growth makes it harder to absorb higher prices for everyday necessities.
“Median wage data masks various outcomes across the total population of workers. When wages are broken out by quartile, the lowest-income earners are seeing little to no inflation-adjusted growth,” says Kates.
For many workers, “it feels like stagnation because it is,” he says.
The combination of modest wage gains and higher price levels may help explain why sentiment around household finances remains weak. In a November poll of 1,114 Americans from YouGov, 53% said their household income is just keeping up with expenses, while 32% said they are falling behind.
Similarly, 62% of employed Americans say their income hasn’t kept up with household expenses, according to a December Bankrate survey. Among those who don’t expect their finances to improve in 2026, 65% cited inflation as the main reason, compared with about 30% who pointed to factors like government policies or stagnant income.
For many Americans, flat real wages mean they’re no longer losing ground as quickly — but they’re not getting ahead either.
Federal Reserve Chair Jerome Powell has acknowledged that disconnect. Speaking in December, he said many households are still grappling with “embedded higher cost due to higher inflation in 2022 and ’23,” even as inflation slows.
“We’re going to need to have some years where real compensation is higher, significantly positive ... for people to start feeling good about affordability,” Powell said.
The bottom line for the December CPI report is that parsing out the recent consumer price behavior is difficult in the absence of numbers for October. With nothing to make month-over-month comparisons in November from October and October from September, the monthly change for December is isolated.
However, the annual pace of increases tells a story that the downward trend for service prices that had helped move the trend for disinflation has now flattened out. Moreover, if the upward trend in commodities prices is inching lower overall, prices are going up in some categories vital to household nondiscretionary spending, like food, energy, and shelter. The December CPI will not suggest to a majority of Fed policymakers that the fight for price stability is done. The FOMC will find inflation remains elevated and will consequently be cautious about lowering rates again.
The month-over-month increase is 0.3% in December for all items and up 0.2% at the core. The CPI for food and beverages is up 0.7%, and energy costs are up 0.3% despite a 0.5% decrease in gasoline prices. Shelter costs are up 0.4% from the prior month. The CPI excluding shelter is up 0.4%. The CPI for services is up 0.3% and is 0.2% higher for commodities.
The year-over-year CPI is up 2.7% in December, the same as in November. The core CPI for December is up 2.6%, also the same as in the prior month. Food prices are up 3.0% compared to December 2024, and energy costs are up 2.3% from a year ago, compared to up 4.2% in November. Shelter costs are up 3.2% in December from a year earlier, compared to up 3.0% in the November data.
Probably the most important takeaway from the report is that the December CPI for services is up 3.3% compared to a year ago, slightly faster than the up 3.2% in November, and the CPI for commodities is up 1.7% year-over-year in December compared to up 1.8% in November.
