US consumer prices drop 0.4 per cent in December, biggest monthly fall in 6 years, as gas drops | iNFOnews | Thompson-Okanagan's News Source

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US consumer prices drop 0.4 per cent in December, biggest monthly fall in 6 years, as gas drops

FILE - In this Dec. 22, 2014 file photo, shoppers stand outside the Kate Spade store at St. Louis Premium Outlets in Chesterfield, Mo. The Labor Department reports on consumer prices for December on Friday, Jan. 16, 2015. (AP Photo/St. Louis Post-Dispatch, Robert Cohen, File) EDWARDSVILLE INTELLIGENCER OUT; THE ALTON TELEGRAPH OUT
January 16, 2015 - 11:50 AM

WASHINGTON - U.S. consumer prices fell in December by the largest amount in six years, reflecting another big monthly decline in gas prices and providing further evidence of falling inflation pressures.

The Labor Department said Friday that its consumer price index dropped 0.4 per cent last month, the biggest one-month drop since December 2008. It was also the second straight monthly decline in prices with both months reflecting big decreases in gas prices, which have been tumbling in recent months because of the global plunge in oil prices.

Core inflation, which excludes volatile food and energy, showed no increase in December, only the second time since 2010 that core prices have not risen.

"There is little inflation pressure in the United States or almost anywhere else for that matter," said Jennifer Lee, senior economist at BMO Capita Markets.

For all of 2014, overall inflation was up just 0.8 per cent, the smallest annual increase since 2008.

Even before the big plunge in oil prices, inflation has been running levels well below the 2 per cent that the Federal Reserve sees as an optimal annual increase for prices. That has given the Fed leeway to keep a key interest rate at a record low to boost economic growth.

The Fed in December said that it intended to be "patient" about raising interest rates, supporting the view among many economists that the first rate increase will not occur until June at the earliest.

Some economists suggested that a big drop in inflation may cause the Fed to delay the first rate hike beyond June because of concerns about the threat of deflation, a situation of falling prices which can weaken economic growth. But other analysts said June remained the most likely date for the first Fed rate hike.

Ethan Harris, chief economist at Bank of America Merrill Lynch, said that falling energy prices should be a net positive for the economy, giving consumers more money to spend on other items and thus leading to stronger economic growth.

Harris, chairman of an American Bankers Association forecasting panel, said the consensus view of the panel's 15 chief bank economists was that the Fed would begin raising rates by mid-2015 but that the rate increases would be gradual.

"We expect the Fed to calibrate its policy to minimize any shock to growth," Harris said.

The 0.8 per cent rise in prices for the year compared to a 1.5 per cent increase in 2013 and a 1.7 per cent increase in 2012. It was the smallest advance since prices edged up just 0.1 per cent in 2008, the year the Great Recession threw the economy into reverse.

Core inflation rose 1.6 per cent for the 12 months ending in December. Core prices were held back in December by a big 5 per cent drop in airline fares. Clothing prices fell 1.2 per cent in December and new car prices dipped 0.1 per cent. Paul Dales, senior U.S. economist at Capital Economics, said both of those declines may have been influenced by recent gains in the value of the dollar.

In addition to plunging global oil prices, the dollar has been rising against other major currencies. That makes foreign-produced goods cheaper for U.S. consumers.

In December, gas prices fell 9.4 per cent, the sixth consecutive monthly decline and the biggest drop since December 2008. The string of declines has left gas 19.1 per cent lower than a year ago. Food prices edged up 0.3 per cent in December and are 3.4 per cent higher than a year ago. Some of the gains this year reflect drought conditions in California and other states.

Oil, which had been trading for more than $100 per barrel last summer is now going for less than half that. The big plunge has lowered prices at the pump to a nationwide average of $2.09, according to AAA, down from $2.55 a gallon just one month ago and $3.31 a year ago.

News from © The Associated Press, 2015
The Associated Press

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