Originally Published: 11 JAN 24 08:32 ET

Updated: 11 JAN 24 08:59 ET

By Alicia Wallace, CNN

New York (CNN) — US consumer prices rose 3.4% annually to close out 2023, capping a year of substantial progress on efforts to rein in decades-high inflation.

The Consumer Price Index, a closely watched inflation gauge that measures the average price changes for commonly purchased goods and services, rose 0.3% in December from the month before, matching expectations, according to Bureau of Labor Statistics data released Thursday.

The monthly and annual numbers for December were higher than those seen in November, when tumbling gas prices drove the overall index lower. In December, gas prices stayed mostly in neutral, rising 0.2%, while rising shelter costs accounted for more than half of the monthly all-items increase, according to the BLS report.

Economists were expecting the annual overall inflation rate to tick higher, to 3.2% from the 3.1% headline reading the month before, according to FactSet consensus estimates.

Despite the upswing, the annual rate of consumer-level inflation is down considerably from December 2022’s rate of 6.5%; additionally, a closely watched measure of underlying inflation slowed further.

When removing the more volatile categories of food and gas, core CPI increased 0.3% from November and 3.9% for the 12 months ended in December. In November, core CPI rose 0.3% monthly and 4% annually.

Economists had expected December’s core CPI would rise 0.3% on a monthly basis and 3.8% annually, according to FactSet.

What this means for the Fed’s rate cut plans

Thursday’s report, at first glance, appears to be yet another example of the long and bumpy process to bring down inflation. However, when annualizing the recent months’ data, the latest CPI report shows continued progress toward what the Federal Reserve would like to see.

Still, December’s report likely pushes back a Fed rate cut further into the year, economists said.

“Looking through the small rise in headline inflation — which was due to energy prices rising — I think the message from this release is that core inflation is proving sticky,” Brian Coulton, Fitch Ratings chief economist, wrote Friday. “This will give the Fed grounds for caution and they are unlikely to cut rates as quickly as the markets currently expect.”

This is a developing story and will be updated.

The-CNN-Wire