Annual U.S. Inflation Rises 2.7%, December Inflation Rate Climbs 0.1%

Consumer prices shifted slightly higher in December but the annual inflation rate jumped due to rising energy costs, the Labor Department reported Friday.

US consumer prices increased modestly at 0.1% last month, which was down from a 0.4% increase in November and marked the lowest reading since July. Most forecasters were expecting a 0.2% increase.

"Consumer pricing pressures remain very subdued," Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, was quoted on Bloomberg. "It gives the Fed further leeway to continue keeping rates where they are well through 2010."

The government’s Consumer Price Index, which measures inflation pressures at the consumer level, rose 2.7% on an annual basis in 2009 — the biggest gain since 2007. By comparison, American’s paid just 0.1% more for goods and services in 2008. The contrasting difference was primarily driven by higher energy prices, with gasoline up 53.5% in 2009 after declining 43.1% in 2008.

The so-called core CPI, which excludes the more volatile food and energy items, also increased 0.1% in December. Housing prices, which account for more than a third of the CPI index, remained unchanged and contributed in containing prices.

"Core inflation was held down by housing prices," Mark Vitner, an economists at Wells Fargo Securities, said on CNNMoney. "That’s likely to continue because housing is in over supply."

December’s core CPI was in line with expectations and comes on the heels of an unchanged reading in November. Core inflation rose 1.8% over the past 12 months after increasing 1.7% in November. The inflation figure is right within the Federal Reserve’s comfort range of between 1%-2%.

Consumer prices in December

Rising December prices include:

  • Used car and truck prices rose 2.5% compared to a 2.0% increase during the month prior
  • Energy prices increased 0.2% after soaring 4.1% in November
  • Gasoline prices advanced 0.2% after jumping 6.4% in the month prior
  • Fuel oil prices climbed 1.1% following a surge of 9.0%.
  • Food prices moved up 0.2%. They were up 0.1% in November.
  • Airfares increased for the sixth consecutive month, rising 2.4%
  • Medical care prices climbed 0.1%
  • Tobacco prices soared 30.1% in 2009
  • Dairy and related products prices advanced 0.5% after declining 0.7%
  • Lodging away from home prices also increased 0.5% after a drop of 1.5%
  • Clothing prices rose 0.4% after a decline of 0.3% in November
  • Prices for fruits and vegetables and for other food at home both rose 0.3%

Declining December prices include:

  • New vehicles prices declined 0.3% after a 0.6% rise in November
  • Natural gas prices plummeted 18.1% after rising 1.5% during the prior month

The index for electricity, which increased 1.4% in November, was unchanged in December.

To compare how the buying power of the US dollar has changed over time, check out the updated Inflation Calculator.

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