U.S. consumer prices dropped at the end of last year — the first decline in nine months — suggesting underlying price pressures remain moderate even though wages are rising.
The Labor Department reported Friday that the Consumer Price Index dipped 0.1% in December after being unchanged in November. In the 12 months through December, the CPI rose 1.9%, slowing from November’s 2.2% gain.
The December CPI reading reflected a 7.5% drop in gasoline prices, which followed a 4.2% decline in November and was the largest decrease since February 2016.
Excluding the volatile food and energy components, the CPI increased 0.2%, advancing by the same margin for a third straight month. In the 12 months through December, the so-called core CPI rose 2.2%, matching November’s increase.
Overall, the report “painted a picture of inflation that was under control,” Reuters said, adding, “This likely supports recent statements by Federal Reserve officials pledging patience in raising interest rates this year.”
“The Fed will take this as further proof that price pressures are building more slowly than some have feared,” said James McCann, senior global economist at Aberdeen Standard Investments.
Concerns about inflation and an overheating economy had spurred the Fed to raise interest rates four times last year. But the central bank has forecast only two hikes this year, with several policymakers, including Chairman Jerome Powell, saying they would be cautious about tightening monetary policy.
As MarketWatch reports, much of the increase in inflation last year was tied to a surge in the cost of oil but energy prices actually fell in 2018 for the first time in three years and housing and services costs, which have also been contributing to rising inflation, may also ease soon.
“This [report] gives the Fed plenty of room to pause as there is no ‘real’ inflationary pressures building,” Chris Gaffney, president of world markets at TIAA Bank, told MarketWatch.