US consumer prices rise slightly; underlying inflation muted

US consumer prices rise slightly; underlying inflation muted

People shop at Macy's Department store in New York
FILE PHOTO: People shop at Macy's Department store in New York City, U.S., March 11, 2019. REUTERS/Brendan McDermid

WASHINGTON: U.S. consumer prices rose slightly less than expected in December and monthly underlying inflation pressures retreated, which could allow the Federal Reserve to keep interest rates unchanged at least through this year.

The Labor Department said on Tuesday its consumer price index increased 0.2 per cent last month after climbing 0.3 per cent in November. The monthly increase in the CPI has been slowing since jumping 0.4 per cent in October.

In the 12 months through December, the CPI rose 2.3 per cent. That was the largest increase since October 2018 and followed a 2.1 per cent gain in the 12 months through November.

The CPI jumped 2.3 per cent in 2019, the largest rise since 2011, after increasing 1.9 per cent in 2018.

Economists polled by Reuters had forecast the CPI would rise 0.3 per cent in December and advance 2.3 per cent on a year-on-year basis.

Excluding the volatile food and energy components, the CPI edged up 0.1 per cent after climbing 0.2 per cent in November. The so-called core CPI was up by an unrounded 0.1133 per cent last month compared to 0.2298 per cent in November.

Underlying inflation in December was held back by declines in the costs of used cars and trucks, airline tickets and household furnishing and operation, which offset increases in the prices of healthcare, apparel, new motor vehicles, recreation, and motor vehicle insurance.

In the 12 months through December, the core CPI increased 2.3 per cent, the largest gain since October 2018, after rising 2.3 per cent in November. For all of 2019, the core CPI accelerated 2.3 per cent after increasing 2.2 per cent in 2018.

US stock index futures were trading mixed while prices of US Treasuries were higher. The dollar was up against a basket of currencies.

HEALTHCARE COSTS RISE

The Fed tracks the core personal consumption expenditures (PCE) price index for its 2.0 per cent inflation target. The core PCE price index rose 1.6 per cent on a year-on-year basis in November. It undershot its target in the first 11 months of 2019. PCE price data for December will be published later this month.

The US central bank last month left interest rates steady and signaled monetary policy could remain on hold this year after it reduced borrowing costs three times in 2019.

Minutes of the Fed's Dec 10-11 meeting published early this month showed policymakers generally expected inflation would eventually hit the central bank's target as the economy continued to expand and resource utilization remained high.

There were, however, concerns among some officials "that global or technology-related factors were exerting downward pressure on inflation that could be difficult to overcome."

Moderate inflation was underscored by last week's employment report, which showed the increase in annual wage growth retreating below 3.0 per cent in December, despite the unemployment rate holding at near a 50-year low of 3.5 per cent and a broader measure of labour market slack dropping to a record 6.7 per cent.

In December, gasoline prices advanced 2.8 per cent after rising 1.1 per cent in November. Food prices gained 0.2 per cent after edging up 0.1 per cent in November. Food consumed at home ticked up 0.1 per cent.

Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.2 per cent for a third straight month.

Healthcare costs jumped 0.6 per cent in December after rising 0.3 per cent in the prior month. Prices for prescription medication accelerated 2.1 per cent and consumers paid more for hospital services and doctor visits.

Apparel prices increased 0.4 per cent after nudging up 0.1 per cent in November. New vehicle prices rebounded 0.1 per cent after declining for five straight months. Prices for used motor vehicles and trucks dropped 0.8 per cent last month after increasing 0.6 per cent in November.

The cost of household furnishings and operations dropped 0.4 per cent in December, the largest decrease since December 2014. Airline fares fell 1.6 per cent, declining for a third straight month.

Source: Reuters

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