Gasoline prices drive US consumer prices lower in December

WASHINGTON (AFP) – Falling fuel prices in December pushed US inflation to its slowest pace in more than a year, masking steady gains in food and shelter costs, the government reported last Friday.

The new figures confirm the view of central bankers that they can hold off on raising interest rates again any time soon in the absence of inflation pressure.

The Consumer Price Index (CPI), which tracks costs for household goods and services, fell by 0.1 per cent last month from November, when it was unchanged, according to the Labor Department. It was the first decline since March and matched economists’ expectations.

For 2018, the index rose a tepid 1.9 per cent, dipping below two per cent for the first time in 16 months.

The December energy index fell 3.5 per cent, led lower by weakening gasoline and fuel oil prices, while food costs rose 0.4 per cent.

Excluding the volatile food and fuel categories, core CPI rose 0.2 per cent for the month. That also was in line with expectations and reflected higher costs for housing, home furnishings and medical care, according to the monthly report.

A customer re-fuels her car at a Costco in Robinson Township, Pennsylvania. – AP

Core CPI held steady at 2.2 per cent for the year.

After rising steadily in the first part of the year, inflation has been trending lower since July, confounding expectations that steady job growth, falling unemployment would at last drive prices higher.

Federal Reserve Chairman Jerome Powell and other Fed officials have signalled clearly in recent days that they will pause interest rate increases while they evaluate the economy, but see no inflation threat for now.

But some economists are not convinced the inflation dragon has been slayed.

Food costs “look like they could be back on the rise,” economist Joel Naroff said, lamenting an increase in cake prices. “The drive to eat healthier is becoming much more expensive as fish and seafood costs are jumping.”

In addition, he cautioned, “The tight labour market continues to push up wages, which rose sharply in December.”

But Ian Shepherdson of Pantheon Economics noted that auto prices and airline fares likely will be coming down further and while new tariffs could raise prices “overnight,” he expected the United States and China to reach an agreement to end their trade war.

Naroff questioned the need for the Fed to pause, noting the recent stock market declines were due to a pullback from “irrational exuberance”. He said economic data would justify another interest rate increase in March.