Washington, DC, Jan. 15--Consumer prices posted a modest gain in December, largely due to a rise in food and energy prices. Excluding those volatile categories, core inflation remained at historically low levels, backing the Federal Reserve's view that it's under no pressure to raise interest rates.
The consumer price index rose 0.2%, reversing a 0.2% decline in November, the Labor Department reported Thursday. The core index, which excludes food and energy prices, climbed 0.1%.
In annual terms, consumer prices increased 1.9%, the smallest rate in two years. The core rate was 1.1%, a 43-year low, and near what some Fed policy makers regard as the bottom of the desirable range.
The numbers matched economists' forecasts precisely. They also backed the view of Fed policy makers that inflation is likely to stay low for much of 2004, giving them the freedom to keep interest rates low as well.
Food prices, which account for 15% of the index, rose 0.6%, accelerating from a 0.4% gain in November. Overall energy prices rose 0.2%, rebounding from a 3% decline in November. Gasoline prices, however, declined 0.1% in December.
Although U.S. economy has grown rapidly for more than six months and the dollar has lost value against other major currencies, the Fed has said businesses haven't gained much power to raise prices.
On Wednesday, Fed Governor Ben Bernanke, who has asserted the Fed should cut interest rates if core inflation falls below 1%, said core inflation "is as low as it's been in 40 years and trending downward." Most economists say the core inflation rate isn't likely to rise above 2% this year. Under the circumstances, Fed policy makers have said they can afford to wait for the jobs market to recover before raising interest rates.
