US sees biggest drop of 0.4% in prices in 6 years
Print Edition
CONSUMER prices in the US fell in December by the largest amount in six years, reflecting another big monthly decline in gas prices and providing further evidence of falling inflation pressures.
The Labor Department said yesterday that its consumer price index dropped 0.4 percent last month, the biggest one-month fall since December 2008. It was also the second straight monthly decline in prices with both months reflecting big decreases in gas prices, which have been tumbling in recent months because of the global plunge in oil prices.
Core inflation, which excludes volatile food and energy, showed no increase in December, only the second time since 2010 that core prices have not risen.
For all of 2014, overall inflation was up just 0.8 percent, the smallest annual increase since 2008. The 0.8 percent rise in prices for the year compared to a 1.5 percent increase in 2013 and a 1.7 percent gain in 2012. It was the smallest advance since prices edged up just 0.1 percent in 2008, the year the Great Recession threw the economy into reverse.
Core inflation rose 1.6 percent for the 12 months ending in December.
Much of the slowdown in inflation this year compared to last year reflected the huge declines in energy prices this fall.
In addition to plunging global oil prices, the value of the US dollar has been rising against other major currencies. That makes foreign-produced goods cheaper for US consumers.
Oil, which had been trading for more than US$100 per barrel last summer is now going for less than half that. The big plunge has lowered prices at the pump to a nationwide average of US$2.09, according to AAA, down from US$2.55 a gallon just one month ago and US$3.31 a year ago.
Even before the big plunge in oil prices, inflation has been running well below the 2 percent that the Federal Reserve sees as an optimal annual increase for prices. That has given the Fed leeway to keep a key interest rate at a record low to boost economic growth.
The Fed in December said that it intended to be “patient” about raising interest rates, supporting the view among many economists that the first rate increase will not occur until June at the earliest.
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