US core inflation slowed more than expected in December, offering Washington a rare moment of numerical relief at the end of a year disfigured by tariffs, shutdowns and political theatre. Excluding food and energy, consumer prices rose by a modest 0.2% month on month, while the annual rate eased to 2.6%, matching its lowest level in four years. On paper, inflation is cooling. In reality, the picture is more fragile, more distorted, and far more political than the headline suggests.

This print carries more credibility than November’s data, which was clouded by the prolonged federal shutdown. Because the Bureau of Labour Statistics was unable to collect price data in October, housing costs were mechanically assumed to be flat, thereby artificially depressing the annual core figure. December, by contrast, restores a semblance of statistical gravity. If inflation is slowing, it is now doing so for reasons that look structural rather than bureaucratic.

The anatomy of the report, however, tells a more nuanced story. Housing costs, long the engine of US services inflation, reaccelerated modestly and were the single largest contributor to the monthly rise. Clothing prices firmed. Leisure costs jumped. Air fares posted their strongest increase on record, while food prices registered their sharpest rise since mid-2022. This is not a deflationary idyll. It is a rebalancing.

At the same time, several pressure points finally cracked. Prices fell for household appliances, used cars and trucks. Vehicle repair costs recorded their steepest decline on record. Core goods prices, excluding food and energy, were flat, defying expectations of a tariff-driven rebound. That detail matters. It suggests that the feared second-round effects of Trump’s trade policy on consumers may already have peaked, having been absorbed by margins, inventory adjustments, and supply chain arbitrage rather than passed through in full.

This is the quiet victory buried in the report. After years of inflation driven by rents, logistics, labour shortages, and geopolitics, the US economy is showing a degree of price discipline without collapsing into a recession. The so-called supercore services gauge, which strips out housing and energy and is closely watched by the Federal Reserve, rose just 0.3% on the month. On an annual basis, it now runs at 2.7%, down from nearly 4% a year ago. For a central bank obsessed with credibility, this is not noise. It is progress.

Markets, predictably, oscillated between relief and distrust. Equities softened. Treasuries wobbled. The dollar barely moved. Donald Trump, meanwhile, continued his ritual denunciation of Jerome Powell, accusing the Fed of timidity for not cutting rates faster, even as inflation quietly drifts back towards target. This is the contradiction at the heart of the current cycle: a president demanding easier money to offset the costs of his own tariffs, while a central bank tries to normalise policy in an environment where politics has become the primary exogenous shock.

The labour market further complicates the picture. Real wages rose again in December, with average hourly earnings increasing 1.1% year on year after inflation. That makes two and a half years of positive real wage growth. Yet consumer sentiment remains depressed, crushed not by falling purchasing power but by the persistent perception that the cost of living remains structurally high. Inflation may be easing, but affordability fatigue is entrenched, and that matters far more politically than any decimal point.

Looking ahead, the disinflation story is likely to continue, but slowly and unevenly. Early-year price resets, still elevated service costs, and unresolved legal uncertainty around Trump’s tariff regime mean January and February could be noisy. Beyond that, the direction is clearer than the speed. Inflation is bending, not breaking.

For the Federal Reserve, this report buys time. Rates are likely to remain unchanged at the next meeting, with the debate shifting from whether inflation is beaten to how much labour market softness the Fed is willing to tolerate before acting again. For markets, the message is more uncomfortable: the easy disinflation trade is behind us, and what remains is a low volatility grind shaped less by economics than by politics, courts and executive impulse.

Inflation, in other words, is no longer the problem. It is the alibi.