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Cheaper gasoline weighs on US consumer prices in December

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WASHINGTON: US consumer prices fell for the first time in nine months in December amid a plunge in gasoline prices, but underlying inflation pressures remained firm as rental housing and healthcare costs rose steadily.


Overall, the report from the Labor Department on Friday painted a picture of inflation that was under control, with increases in some categories offset by declines elsewhere. 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 based on the strong growth of late and tight labour market,” said James McCann, senior global economist at Aberdeen Standard Investments in Boston. “It certainly seems to justify the Fed’s message about being more patient on rate increases.”


The Consumer Price Index dipped 0.1 per cent last month, the first drop and weakest reading since March, after being unchanged in November. In the 12 months through December, the CPI rose 1.9 per cent, slowing from November’s 2.2 per cent gain.


Excluding the volatile food and energy components, the CPI increased 0.2 per cent, advancing by the same margin for a third straight month. In the 12 months through December, the so-called core CPI rose 2.2 per cent, matching November’s increase.


December’s inflation readings were in line with economists’ expectations. The CPI rose 1.9 per cent in 2018, slowing from a 2.1 per cent increase in 2017. But the core CPI jumped 2.2 per cent, up from 1.8 per cent in 2017.


The Fed, which has a 2 per cent inflation target, tracks a different measure, the core personal consumption expenditures (PCE) price index, for monetary policy.


The core PCE price index increased 1.9 per cent year-on-year in November after rising 1.8 per cent in October. It hit 2 per cent in March for the first time since April 2012.


The US central bank has forecast two interest rate hikes this year, but several policymakers, including Chairman Jerome Powell, have said they would be cautious about tightening monetary policy.


Powell reiterated that view on Thursday, saying “especially with inflation low and under control we have the ability to be patient and watch patiently and carefully” while the central bank monitored economic data and financial markets for risks to growth.


Minutes of the US central bank’s December 18-19 policy meeting published on Wednesday showed “many” officials were of the view that the Fed “could afford to be patient about further policy firming.”


But with core inflation remaining firm despite a strong dollar and slowing global growth, economists say further rate increases this year cannot be ruled out. In addition, a tighter labor market is boosting wage growth.


“If core inflation holds firm, the Fed will continue to consider additional rate hikes this year,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. — Reuters



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