Inflation watch: December consumer prices up just 0.1%
Washington — Consumer inflation slowed in December to a tiny 0.1 percent gain as energy costs retreated from a big jump in November.
The December increase in consumer prices followed a sharper 0.4 percent increase in November, the Labor Department reported Friday. The December gain was the smallest advance since October.
Over the past 12 months, overall inflation is up 2.1 percent while core inflation, which excludes volatile food and energy costs, rose 1.8 percent. The overall 2.1 percent price increase was identical to the inflation gain in 2016 with both years up from tiny increases of 0.8 percent in 2014 and 0.7 percent in 2015.
Low inflation has made the Federal Reserve cautious about raising interest rates too quickly.
After maintaining a benchmark policy rate at a record low near zero for seven years, the Fed started gradually raising rates in December 2015 with one quarter-point hike, and another in 2016. The Fed last year accelerated that pace, raising rates three times and signaling at its meeting last month that it expected to raise rates at the same clip this year.
However, economists believe the central bank may be forced to accelerate that pace if there are hints that inflation is beginning to rise more rapidly, given that unemployment continues to hover at 17-year lows.
Paul Ashworth, chief U.S. economist at Capital Economics, said that the December report, with a 0.3 percent rise in core prices, the largest in 11 months, bolstered his view that the Fed will accelerate rate increases this year. He said he expected the next rate hike to occur in March with a total of four hikes this year. He said this forecast was based on a view that inflation will begin to show bigger gains in coming months.
“Once spring comes around … the big declines in components like wireless telephone services will drop out of the annual calculation and the core inflation rate will rebound well above 2 percent,” Ashworth said.
For December, energy prices fell 1.2 percent after surging 3.9 percent in November. The December decline was led by a 2.7 percent drop in the price of gasoline, which had jumped 7.3 percent in November. Currently, the nationwide average for gas is $2.52, up from $2.35 a year ago, according to AAA. The government figures show that gas prices are up 6.9 percent from December 2016.
Food costs edged up 0.2 percent in December and are up a modest 1.6 percent over the past year.
Core inflation rose 0.3 percent in December with core prices up 1.8 percent over the past 12 months. Clothing costs are one key sector bucking the trend of higher prices. Clothing costs have fallen the past four months are down 1.6 percent over the past year.
Copyright 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.