Inflation, as measured by the producer price index, rose 3% the year ending in December, the Bureau of Labor Statistics reported Friday.
The report indicates that inflation tracked by the PPI still remains a full percentage point above the Federal Reserve‘s target.
Economists have been examining producer price index reports and other inflation reports for indications that President Donald Trump’s tariffs have driven up certain prices or whether underlying price pressures are abating.
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On a month-to-month basis, the price index increased by 0.5%, more than was expected.
Core PPI inflation, which strips out volatile food and energy prices, rose to 3.3% on an annual basis. Core inflation rose 0.7% on a monthly basis, well above expectations.
Friday morning’s report on producer prices comes after the consumer price index showed that inflation trended down in 2025. While lower inflation is a favorable development for Trump’s political prospects, the decline has not been steep enough to improve the public’s perceptions of the economy. Measures of consumer sentiment and household economic confidence remain historically low.
Inflation rose 2.7% the year ending in December, according to the CPI. The Fed’s target is 2%.
The Fed typically keeps interest rates higher when inflation is running too hot. In recent months, though, the central bank has begun cutting rates, in large part because officials have been concerned about softening in the labor market.
Still, at its first meeting of 2026 this week, the Fed voted to hold interest rates steady, citing lingering concerns about too-high inflation and the relatively stable labor market. This year is likely to feature fewer interest rate revisions, as the central bank works to depress inflation.
While the jobs market has weakened, it is still above water.
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The economy added 50,000 jobs in December 2025, and the unemployment rate fell to 4.4%. But with revisions to the numbers for October and November, the three-month moving average of job gains was minus 22,000 in December. Despite that, private-sector job growth has been better, averaging nearly 30,000 over the past three months.
Despite declines in overall inflation in 2025, families across the country are still expressing discontent with prices and are reporting affordability issues. That discontent has hurt Trump’s approval ratings and has made the economy one of the top issues heading into this year’s midterm elections.