WASHINGTON — Lower gas prices offset more expensive food and higher rents to keep the main measure of consumer inflation flat last month, the Labor Department said Wednesday.
Food prices increased 0.2 percent in December from November. Rents and airline fares also rose. Gasoline prices fell a seasonally adjusted 2.3 percent.
The flat reading of the December Consumer Price Index meant that prices rose only 1.7 percent in 2012, down from 3 percent in 2011. Food prices increased 1.8 percent, down from 4.7 percent in 2011. Energy prices rose slightly.
Excluding the volatile food and energy categories, core prices ticked up 0.1 percent in December compared with November. And core prices rose only 1.9 percent in 2012. That was below the Federal Reserve’s inflation target of 2 percent and it was lower than 2011’s increase of 2.2 percent.
Mild inflation leaves consumers with more money to spend, which is good for the economy. Lower inflation also makes it easier for the Fed to continue with its efforts to accelerate the economy. If the Fed were worried that prices are rising too fast, it might have to raise interest rates.
With job gains and economic growth steady but modest, many businesses are reluctant to raise prices for fear of losing customers, and that has helped keep inflation tame. Workers also aren’t able to demand higher wages when growth is weak.
Prices are likely to stay low in the early months of 2013, based on a measure of wholesale prices reported Tuesday.
The Producer Price Index, which measures price changes before they reach the consumer, fell for the third straight month in December. Wholesale food prices dropped by the most in 19 months, largely because of a sharp drop in beef and veal costs. Vegetable and cheese prices also declined.
Separately, the Federal Reserve said factory production in the United States rose in December for the second straight month, buoyed by more output of autos, electronics and business equipment.
The Fed said factory output increased 0.8 percent last month compared with November. That followed a 1.3 percent rise in November, which reflected a rebound from Hurricane Sandy.
Total industrial production increased 0.3 percent in December following a 1 percent rise in November. Production slowed mostly because utility output dropped 4.8 percent, reflecting unseasonably warm weather.
The back-to-back gains in factory output offered some hope that manufacturing could be picking up after a weak year. One area that has been notable strong is the auto industry, which ended 2012 with its best sales in five years. Production of autos and parts grew 2.6 percent in December.
Article source: http://www.nytimes.com/2013/01/17/business/economy/consumer-prices-unchanged-in-december.html?partner=rss&emc=rss