Cheaper gasoline weighs on US consumer prices in December as CPI declines 0.1% — Labor dep’t

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 health care 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 labor 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 (CPI) dipped 0.1% 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%, slowing from November’s 2.2% gain.

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.

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

The Fed, which has a 2% 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% year on year in November after rising 1.8% in October. It hit 2% in March for the first time since April 2012.

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

Mr. 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 Dec. 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.

The Fed lifted borrowing costs four times in 2018. The dollar was little changed against other currencies, while US Treasury prices rose. Stocks were trading lower after a five-day rally. —