US consumer prices increase as expected in December

[WASHINGTON] US consumer prices increased in December as the distortions related to the government shutdown that had artificially lowered inflation in November unwound, cementing expectations the Federal Reserve would leave interest rates unchanged this month.

The Consumer Price Index rose 0.3 per cent last month, the Labor Department’s Bureau of Labor Statistics said on Tuesday (Jan 13). In the 12 months through December, the CPI advanced 2.7 per cent, matching November’s gain. Economists polled by Reuters had forecast the CPI picking up 0.3 per cent. The BLS estimated the CPI rose 0.2 per cent from September to November.

The 43-day shutdown prevented the collection of prices for October, resulting in the BLS using a carry-forward method to impute data, especially for rents, to compile November’s CPI report. While prices for November were collected, that was not until the second half of the month when retailers were offering holiday season discounts.

The carry-forward imputation method treated October prices as unchanged. President Donald Trump’s sweeping import tariffs have raised goods prices creating an affordability challenge for households. High inflation has eroded Trump’s approval ratings and will be a political hot button this year as Trump and his fellow Republicans battle to retain control of the US Congress. Excluding the volatile food and energy components, the CPI increased 0.2 per cent in December. The so-called core CPI rose 2.6 per cent year-on-year in December after rising by the same margin in November. The BLS estimated the core CPI climbed 0.2 per cent from September to November.

The Fed tracks the Personal Consumption Expenditures Price indexes for its 2 per cent inflation target. The pick-up in consumer inflation followed news last week that the unemployment rate dipped in December even as job growth was tepid. The US central bank is expected to keep its benchmark overnight interest rate in the 3.50 per cent-3.75 per cent range at its January 27-28 meeting.

An escalation in tensions between Fed Chair Jerome Powell and Trump has left most economists not expecting a rate cut before Powell’s term ends in May. The Trump administration has opened a criminal investigation into Powell, which the Fed chief called a “pretext” to influence rates. REUTERS