U.S. Core Consumer-Price Gauge Rises Less Than forecast at 0.2%
A gauge of underlying U.S. inflation rose less than forecast in December, restrained in part by a deceleration in shelter costs and underscoring the Federal Reserve’s view that price pressures are muted.
The core consumer price index, which excludes volatile food and energy costs, increased 0.1 per cent in December from the prior month, the smallest advance in three months, a Labor Department report showed Tuesday. The median estimate in a Bloomberg survey of economists called for a 0.2-per-cent rise. Compared with a year earlier, the core CPI rose 2.3 per cent, in line with estimates. The broader CPI increased 0.2 per cent and 2.3 per cent from December 2018, both below forecast.
The subdued gain in costs of household goods and services indicates Fed policy makers can hold the line on interest rates for much, if not all, of this year. Fed officials reduced the target range for their benchmark rate three times in 2019 and signalled they will remain on hold for the near future or until the economic outlook shows a material change.
The Labor Department’s CPI tends to run higher than the Commerce Department’s personal consumption expenditures price index, which the Fed officially targets. The core PCE index that policy makers watch for a better read on underlying price trends softened in November, rising 1.6 per cent from the same month in 2018. Core PCE has held below the two per cent objective for the better part of seven years.
While inflation remains relatively contained, the 2.3 per cent full-year increase in the core CPI gauge was the fastest for a calendar year since 2.4 per cent in 2007.
The Labor Department’s CPI report showed shelter costs, which make up about a third of total CPI, decelerated. They rose 0.2 per cent after a 0.3 per cent gain in November, and were up 3.2 per cent year-over-year for the smallest advance since January last year. Both owners-equivalent rent, one of the categories that tracks rental prices, and rent of primary residence climbed 0.2 per cent from a month earlier.
The CPI was also restrained by a 0.8-per-cent monthly decline in used car and truck prices. They were down 0.7 per cent from a year earlier, the biggest year-over-year drop since September 2018.
Prices of household furnishings and operations decreased 0.4 per cent in December, the largest monthly decline in five years. Airfares also fell for a third straight month.
Energy prices rose 1.4 per cent from the prior month as gasoline prices climbed 2.8 per cent. Food costs increased 0.2 per cent, and expenses for medical care were up 0.6 per cent.
Apparel prices, which tend to be volatile on a month-to-month basis, rose 0.4 per cent, the most in five months.
The report showed new vehicle prices increased for the first time since June.
A separate Labor Department report Tuesday showed average hourly earnings, adjusted for price changes, rose 0.6 per cent in December from a year earlier after 1.1 per cent the previous month. The monthly jobs report last week had already showed an unexpected deceleration in nominal wages.
Economists surveyed by Bloomberg forecast the core CPI to rise 0.2 per cent from the prior month and 2.3 per cent from a year earlier, with the broader index seen rising 0.3 per cent and 2.4 per cent on a year-over-year basis.