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The latest Consumer Price Index (CPI), out Wednesday, showed that housing inflation pressures continued to moderate in December in an encouraging sign for the Federal Reserve.

Data from the Bureau of Labor Statistics showed shelter costs rose 4.6% year over year in December, the smallest 12-month increase since January 2022. The metric rose 0.3% compared to the previous month, matching November’s 0.3% monthly increase. In October, shelter prices gained 0.4% month over month.

An easing of housing inflation could help determine the path of interest rate cuts as the Fed deliberates its next policy decision slated for later this month.

"[Fed Chair Jerome] Powell in his post-meeting press conferences of late has repeated an oft-cited data point many times, that market rates have come down for new leases on apartments, but inflation measures are still reporting the lagged effects of prior increases," Jefferies US economist Thomas Simons said in a note. "The slowdown of the past few months is exactly what he was talking about, and should give the FOMC more confidence that they can continue to cut rates this year, even if they pause in the short-term."

Read more: Everyday prices keep climbing, even amid steadier overall inflation

According to BLS, the index for rent rose 0.3% in December, a slight pickup from November’s pace of 0.2%. Meanwhile, owners' equivalent rent also slightly accelerated, rising 0.3% for the month, up from November’s 0.2% gain. Owners' equivalent rent is the estimated rent a homeowner would pay if they were renting their own property.

Those gains were counteracted by a drop in the lodging away from home index, which fell 1% in December after rising 3.2% in November.

"As expected, rents accelerated but remained below the prior 6-month average," Morgan Stanley analyst Michael Gapen said in a note. "We expect continued progress ahead as new-lease inflation remains below CPI housing."

Broadly, consumer prices rose 0.4% over the prior month in December, up from November’s monthly 0.3% gain, and on par with economists' expectations. But core inflation , which strips out volatile categories such as food and energy, decelerated.

“The easing shelter inflation narrative remained intact this month, with price levels holding steady at 0.3%. Progress on this front should be closely monitored as it is a key driver for bringing inflation closer to the Fed’s 2% target,” Jeff Schulze, head of economic and market strategy at ClearBridge Investments, wrote in a statement after the release.