US Consumer Prices Edge Up Slightly in December

Man wearing surgical gloves and mask refueling car at gas station

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The prices consumers paid for goods and services edged up for a second straight month in December, but on the whole, U.S. inflation remained quite subdued last year as the pandemic kept a lid on demand. 

Consumer prices ticked up 0.4% in December, accelerating very slightly from the 0.2% inflation rate in November, the Bureau of Labor Statistics said in Wednesday’s report on the Consumer Price Index (CPI). Most of the small month-over-month increase, which was seasonally adjusted, came from a 8.4% hike in gasoline prices. Food prices rose 0.4%, reflecting increases at both grocery stores and restaurants.

Stripping out food and energy prices to get what’s called the “core” rate, inflation was even more benign in December, slowing to a 0.1% rate from 0.2% in November as the COVID-19 crisis limited activity and spending. Over the course of the year, the core inflation rate was 1.6%—less than the 2.3% seen in 2019 and the 2% average annual rate over the past 10 years. The Federal Reserve typically targets 2% inflation as ideal, but has said it’s temporarily aiming for “moderately above” 2% in order to help the economy recover from the pandemic.

The latest report “suggests that the widely-expected pickup in inflation remains some months away,” Sarah House, a senior economist at Wells Fargo Securities, wrote in a research note. 

Consumer spending should come roaring back in the second half of the year, boosting prices, House said. Economists expect the economy and life in general to look more normal in the second half of this year as COVID-19 vaccines roll out and allow for things to reopen.

Apparel prices in December increased 1.4%, while new vehicle prices rose 0.4%. For the third consecutive month, used car and truck prices dropped, falling 1.2%. Transportation services and medical care services both decreased 0.1%.

With the pandemic intensifying, airfare prices in December reversed a two-month uptick, dropping 2.3%. Hotel prices were unchanged after rising 4.5% in November.

The 0.4% overall increase in consumer prices matched expectations of economists polled by Moody’s Analytics.