WASHINGTON - The cost of living in the U.S. climbed in December by the most in six months, led by gains in fuel and rent prices that indicate inflation is making progress in moving toward the Federal Reserve’s goal.
The Labor Department said Thursday that the consumer price index rose a seasonally adjusted 0.3 percent in December, after a flat reading in November.
Prices increased 1.5 percent in 2013, down from 1.7 percent in 2012. That’s below the Fed’s target of 2 percent. Fed officials have said in recent months that they are watching the inflation data closely to ensure it does not fall too far.
“The price data continue to deliver the same message: no signs of inflation pressures in the U.S. economy,” said Laura Rosner, an economist at BNP Paribas.
Data in the report will make it easier for the Fed’s policymakers to keep reducing the pace of its monthly asset purchases as the economy strengthens, analysts said.
“Core inflation is going to gradually, gradually con-verge to the 2 percent target that the Fed has,” said Guy Berger, an economist at RBS Securities Inc. in Stamford, Conn. “Right now, there are just not meaningful underlying pressures on inflation.”
Gasoline prices jumped 3.1 percent in December, the biggest gain since June. Food prices ticked up 0.1 percent, pushed up by higher restaurant costs. Grocery prices were flat, held down by the biggest drop in fruit and vegetable prices in five years.
Excluding the volatile food and energy categories, core prices increased just 0.1 percent in December. Car prices were flat, and airline fares fell 4.7 percent, the most in 14 years. Those declines were offset by a big increase in clothing costs, which followed three months of decreases, and rents also rose.
Medical-care costs were a weak spot in the data, with commodities such as prescription drugs falling 0.8 percent last month, the biggest decrease in data going back to 1967.
Core prices increased 1.7 percent in 2013, down from a 1.9 percent increase in 2012.
Inflation has been held back in recent years by sluggish growth and high unemployment, which makes it harder for retailers and other businesses to raise prices.
Persistently low inflation has allowed the Fed to pursue its extraordinary stimulus program. The Fed started an $85 billion-a-month bond-purchase program in September 2012 in an effort to keep interest rates low and spur more borrowing and spending.Fed policymakers cut those purchases to $75 billion this month.
Fed policymakers could continue their purchases for longer if inflation doesn’t move closer to their 2 percent target. Fed officials have said ultra low inflation poses economic risks. Among other concerns,falling inflation raises inflation adjusted interest rates, making it harder to pay off debts and potentially discouraging borrowing. The Fed meets again at the end of this month.
Critics of the bond-buying program fear it will spark higher inflation. But the inflation has yet to materialize.
A small amount of inflation can be good for the economy, because it encourages consumers and businesses to spend and invest before prices rise further. But if prices barely rise, consumers have little incentive to spend and may wait to see if goods get even cheaper.
Other Labor Department figures released Thursday showed the increase in total prices hurt worker pay. Hourly earnings adjusted for inflation dropped 0.3 percent in December and were up 0.2 percent over the past year.
Information for this article was contributed by Christopher S. Rugaber of The Associated Press and by Jenna Smialek and Ainhoa Goyeneche of Bloomberg News.
Business, Pages 31 on 01/17/2014