A closely watched inflation report due Thursday is expected to show that progress on fighting price pressures within the economy slowed in December.
Economists expect the consumer price index, which measures a range of goods that includes gasoline, health care, groceries and rent, to show that monthly prices rose 3.2% in December – above the 3.1% increase recorded the previous month.
On a monthly basis, inflation is seen rising 0.2%, which is also higher than in November, thanks to an uptick in energy prices.
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Other parts of the report are also expected to point to a slower retreat in inflation. Core prices, which exclude the more volatile measurements of food and energy, are projected to climb 0.3%, or 3.8% annually. Those figures are little changed from November, suggesting that underlying price pressures remain strong.
The Federal Reserve's target rate is 2%.
"The December consumer price index will be closely watched to see if there is continued improvement on the inflation front or if it has stalled," said Greg McBride, chief financial analyst at Bankrate. "The core CPI is at 4% and has been declining consistently, but that is still a long way from 2%."
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The central bank is closely watching the report for evidence that inflation is finally subsiding as policymakers try to cool the economy with a series of aggressive interest rate hikes. Officials have approved 11 rate increases since March 2022, lifting the benchmark federal funds rate from nearly zero to the highest level since 2001.
Fed officials have suggested in recent weeks that rate hikes are over, but they have offered little guidance on when they may begin to reduce rates. A hotter-than-expected report could mean the central bank does not cut interest rates as soon as markets are currently anticipating.
"The CPI data could move fed funds market pricing," Bank of America analysts wrote in a note to clients. "A forecast in line with our expectations would keep a March cut in play."
Central bank officials are also taking into consideration job growth and consumer inflation expectations when setting monetary policy.
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Inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily impacted by price fluctuations.
While inflation has fallen from a peak of 9.1%, when compared with January 2021 – shortly before prices began to spike – the consumer price index is up a stunning 17.62%.
