Your Economy (No Politics)

[Bullwinkle]

U.S. Dec. CPI falls 0.1%, core CPI up 0.2% as expected -
Wednesday, January 18, 2006 2:22:50 PM
http://www.afxpress.com


WASHINGTON (AFX) - U.S. consumer prices fell in December for the second straight month while core inflation remained tame, raising hopes for an early conclusion to the Federal Reserve's rate hikes. The consumer price index fell a surprising 0.1% in December as energy prices continued to fade back from the spike in September, the Labor Department reported Wednesday. It was the second straight decline in the consumer price index, which fell 0.6% in November

Core prices - which exclude food and energy prices - rose 0.2%, as expected, for the third month in a row

Economists were expecting the CPI to rise 0.2% in December, according to a survey conducted by MarketWatch. For all of 2005, the CPI increased 3.4%, not much different than the 3.3% increase in 2004. It was the largest yearly gain since the 3.4% increase in 2000

Core prices rose 2.2% in 2005, matching 2004's gain

"Inflation seems to have weathered the storm of rising energy prices," said Robert Brusca, president of FAO Economics

But Ian Shepherdson, chief U.S. economist for High Frequency Economics, warned that the CPI would be higher in January, as gasoline prices have risen. In addition, core inflation has accelerated over the past three months

The surprising moderation in inflation at the end of the year could give the Federal Reserve a reason to end its cycle of interest rate increases after a 14th rate hike on Jan. 31. Currently, financial markets expect the Fed to stop after a rate hike in March

"Clearly, inflation poses no real threat but overly aggressively Fed interest rate policy could torpedo the economic expansion," said Peter Morici, a business professor at the University of Maryland

The Fed has said it believes core inflation remains contained, but worries that rising rates of resource use, especially labor, will put pressure on firms to raise prices

The Fed would like to keep core inflation growing between 1% and 2% annually

The 0.2% increases in the core CPI in the past three months indicate some successes in passing through higher energy and labor costs. The core CPI rose at a 2.8% annual rate in the fourth quarter, double the rate in the summer. In a separate report, the Labor Department said real weekly earnings (that is, adjusted for inflation) rose 0.1% in December and are down 0.4% in the past year

Large price increases were rare in the December CPI data. Energy prices fell a seasonally adjusted 2.2%, the third straight decline following the 12% rise in September after two hurricanes devastated the energy infrastructure in the Gulf Coast region

Gasoline prices fell 2.6% in December, while natural gas prices dropped 3.5%

Energy prices increased 17.1% for the year

Food prices rose 0.2% in December on higher beef and vegetable prices

Housing prices rose 0.1% in December, despite a 0.9% increase in hotel prices. Rents rose 0.1%, while homeownership equivalent costs rose 0.3%

Medical care prices increased 0.1%

Transportation prices fell 0.8%. New car prices dropped 0.1%. Air fares fell 2.9%

Apparel prices dropped 0.3%

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