The Federal Reserve's preferred measure of inflation picked up in December, pushing the central bank's goal of a 2% annual rate farther into the distance.

The cost of living as measured by the Personal Consumption Expenditures Index rose 2.6% over the year in December, up from 2.4% in November, the Bureau of Economic Analysis said Friday in a monthly report on inflation and consumer spending. The inflation rate was in line with forecasters' expectations, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.

The report highlighted inflation's stubbornness over the past few months. A separate inflation measure, the Consumer Price Index, found a similar trend for December's data, with inflation hovering above 2%, flattening out after having fallen dramatically since the post-pandemic inflation surge in late 2021 and 2022.

What Affect Could Inflation Have on the Fed?

Sticky inflation has hit household budgets, who have to shell out more for consumer items like food, gas, and housing, and has also helped keep borrowing costs high. The Federal Reserve held the fed funds rate steady this week, keeping upward pressure on borrowing costs for all kinds of loans, partly because of the recent lack of progress against inflation. The Fed is keeping borrowing costs high to discourage borrowing and spending, slow the economy, and subdue inflation, aiming to keep it running at a 2% annual rate.

Friday's inflation report did have at least one detail suggesting inflation at least might not be headed in the wrong direction in the long term. Core inflation, which excludes volatile prices for food and energy, did not accelerate but rose 2.8% over the year, the same as in November. On a monthly basis, it rose 0.2%, compared to 0.1% in November. Fed officials and economists pay close attention to "core" prices because food and gas prices fluctuate from month to month for reasons that have little to do with broader inflation trends.

Overall, economists said the inflation data didn't provide any reason for the Fed to break out of its holding pattern on interest rates. The central bank cut rates late last year when inflation was falling, and financial markets are waiting to see when the cuts will resume, which would boost business and the economy overall.

"This reinforces the Fed's reluctance to give clear signals on when it will lower rates and highlights the prudence of maintaining a strict, wait-and-see approach," Jochen Stanzl, chief market analyst at CMC Markets, wrote in a commentary.