US Growth Slows as Inflation Rises

Business activity in the United States expanded in December at its slowest pace in six months, highlighting growing strains in the economy as inflationary pressures intensify. S&P Global’s flash composite output index fell 1.2 points to 53, remaining in expansion territory but signaling a clear deceleration in overall growth.

Price pressures reach multi-year highs

At the same time, cost inflation accelerated sharply. The composite prices-paid index surged nearly three points to 64.1, marking its highest level in more than three years. According to S&P Global, rising input costs are feeding through rapidly into selling prices, resulting in one of the steepest increases in charges faced by customers since 2022.

Tariffs drive broader inflation spillovers

Companies increasingly attribute higher costs to tariffs, with price pressures initially concentrated in manufacturing now spreading into the services sector. This broadening inflation dynamic is eroding affordability and weighing on demand, particularly in consumer-facing industries.

Employment growth weakens

The slowdown in activity is also evident in labor market indicators. S&P Global’s composite employment index dropped 1.4 points, moving closer to stagnation. Services-sector hiring was the weakest since April, as firms restrained recruitment amid rising costs, soft demand, and heightened economic uncertainty.

Orders signal softer demand ahead

New orders data point to further cooling. Growth in overall bookings slowed to its weakest pace since April 2024, while expansion in services-sector new business was the slowest this year. These trends suggest that the loss of momentum extends beyond temporary factors.

The Federal Reserve’s policy dilemma

The combination of slowing growth and accelerating inflation underscores the challenge facing the Federal Reserve. While policymakers have cut interest rates at their last three meetings to support a softening labor market, persistent price pressures continue to fuel concerns about inflation becoming entrenched.

As reported by International Investment experts, the US economy is entering a delicate phase where inflation risks are re-emerging just as growth cools. In 2026, the effectiveness of monetary policy will depend on whether the Fed can contain price pressures without triggering a sharper economic slowdown.