Continue reading for further commentary by Michael Metcalfe, head of Macro Strategy, State Street Markets:

December is typically a month of price declines, but the 4-basis-point (non-seasonally adjusted) drop in the United States price level this past month (see Figure 1) was the softest State Street PriceStats monthly reading in 16 months — coming in below the modest increase recorded in December 2024 (see Figure 2). After months of increases, the State Street PriceStats annual inflation rate has begun to edge lower once again.

Beneath the headline State Street PriceStats measure, our sector series trends were less benign this month. A sharp drop in gasoline prices was largely responsible for the below average headline reading. By contrast, apparel prices were unusually robust for the month, underscoring that disinflation in goods prices cannot be taken for granted.

Recent official inflation prints have proved to be more volatile (and softer) than most forecasters projected. The State Street PriceStats series is still consistent with a gradual disinflationary trend going into 2026, in line with the Federal Reserve’s projections. Given the typical strength of inflation trends in the early months of the year, the coming weeks will provide a sterner test of these projections, especially given the anticipated boost to consumption from fiscal policy. If inflation ends lower at the end of the first quarter — without a repeat of the tariff shock and with continued disinflation in the housing market — confidence in a return to 2.0 percent inflation is likely to strengthen.
 

About the State Street PriceStats indicators

The State Street PriceStats series are designed to provide a low-latency and high-frequency view into inflation trends that is comparable to official Consumer Price Index (CPI). The features of the process are as follows:

• Daily online price collection: State Street PriceStats collects price data daily from over 1,500 multi-line retailers using web scraping technologies, focusing on those with both online and physical stores. Research has shown that retailers tend to adjust online prices first.
• Data structuring and cleaning: Models then clean and standardize raw price data to ensure consistency across more than 40 million products, converting unstructured HTML into structured datasets ready for analysis.
• Categorization and quality checks: State Street PriceStats categorizes prices by economic sectors and sub-sectors, calculates performance statistics, and applies a red-flag system with daily manual checks to resolve data anomalies.
• Index calculation using econometric techniques: State Street PriceStats computes daily inflation statistics using proprietary econometric methods and publishes the results with a three-day lag.
• Retailer and product selection: State Street PriceStats selects retailers based on market share and city presence and includes over 500,000 daily prices — far exceeding the 80,000 monthly prices used by the Bureau of Labor Statistics.
• Use of CPI weights and no quality adjustments: State Street PriceStats applies official CPI weights where possible and adjusts for online data characteristics, calculating price changes only from consecutive observations of identical products without applying standard quality adjustments.