US consumer prices post biggest drop in six years

US consumer prices recorded their biggest decline in six years in December and underlying inflation pressures were benign, which could bolster the case for delaying the first interest rate increase from the Federal Reserve.

The Labor Department said on Friday its Consumer Price Index fell 0.4 per cent last month, the largest drop since December 2008, after sliding 0.3 per cent in November. In the 12 months through December, CPI increased 0.8 per cent.

It was the weakest year-on-year reading since October 2009, and followed a 1.3 per cent rise in November. Last month’s readings were in line with expectations.

While Fed officials have viewed the energy-driven inflation weakness as transitory, a strong dollar is taming underlying price pressures, which could cause some discomfort.

Darkening prospects for the global economy could also complicate matters for the US central bank.

Inflation is running below the Fed’s 2 per cent target, despite a strengthening labor market and overall economy.

Many economists expect the central bank will raise interest rates by June, but the chances for a second-half hike have risen after December’s surprise declines in retail sales and average hourly earnings.

The so-called core CPI, which strips out food and energy, was unchanged in December. It was only the second time since 2010 that it did not increase. The core CPI had nudged up 0.1 per cent in November.

In the 12 months through December, the core CPI rose 1.6 per cent, the smallest gain since February, after increasing 1.7 per cent in November.

Slower global demand and increased shale production in the US have caused an oil glut, sending crude prices tumbling.

Brent crude prices approached a six-year low this week, a sign that overall inflation pressures will remain subdued in the months ahead.

Petrol prices tumbled 9.4 per cent, the biggest drop since December 2008, after declining 6.6 per cent in November. Petrol has now declined for six straight months. Energy prices recorded their biggest decline since 2008.

Food prices rose 0.3 per cent after rising 0.2 per cent the prior month. Within the core CPI, shelter costs increased 0.2 per cent last month after rising 0.3 per cent in November.

There were declines in the prices for apparel, transportation and used cars and trucks.

Reuters