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U.S. Core Consumer-Price Gauge Climbs Less Than Forecast

Vince Golle

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A gauge of underlying U.S. inflation rose less than forecast in December, restrained in part by a deceleration in shelter costs and underscoring the Federal Reserve’s view that price pressures are muted.

The core consumer price index, which excludes volatile food and energy costs, increased 0.1% in December from the prior month, the smallest advance in three months, a Labor Department report showed Tuesday. The median estimate in a Bloomberg survey of economists called for a 0.2% rise.

Compared with a year earlier, the core CPI rose 2.3%, in line with estimates. The broader CPI increased 0.2% and 2.3% from December 2018, both below forecast.

Treasuries rose while the dollar pared gains following the report, as the subdued gain in costs of household goods and services indicates Fed policy makers can hold the line on interest rates for much, if not all, of this year. Fed officials reduced the target range for their benchmark rate three times in 2019 and signaled they will remain on hold for the near future or until the economic outlook shows a material change.

The Labor Department’s CPI tends to run higher than the Commerce Department’s personal consumption expenditures price index, which the Fed officially targets. The core PCE index that policy makers watch for a better read on underlying price trends softened in November, rising 1.6% from the same month in 2018. Core PCE has held below the 2% objective for the better part of seven years.

While inflation remains relatively contained, the 2.3% full-year increase in the core CPI gauge was the fastest for a calendar year since 2.4% in 2007. With unemployment at a half-century low, though, the lack of stronger inflation pressures has puzzled many economists and Fed officials in recent years.

The Labor Department’s CPI report showed shelter costs, which make up about a third of total CPI, decelerated. They rose 0.2% after a 0.3% gain in November, and were up 3.2% year-over-year for the smallest advance since January last year. Both owners-equivalent rent, one of the categories that tracks rental prices, and rent of primary residence climbed 0.2% from a month earlier.

The CPI was also restrained by a 0.8% monthly decline in used car and truck prices. They were down 0.7% from a year earlier, the biggest year-over-year drop since September 2018.

Furnishings, Airfares

Prices of household furnishings and operations decreased 0.4% in December, the largest monthly decline in five years. Airfares also fell for a third straight month.

Energy prices rose 1.4% from the prior month as gasoline prices climbed 2.8%. Food costs increased 0.2%, and expenses for medical care were up 0.6%.

Apparel prices, which tend to be volatile on a month-to-month basis, rose 0.4%, the most in five months.

The report showed new vehicle prices increased for the first time since June.

A separate Labor Department report Tuesday showed average hourly earnings, adjusted for price changes, rose 0.6% in December from a year earlier after 1.1% the previous month. The monthly jobs report last week had already showed an unexpected deceleration in nominal wages.

Economists surveyed by Bloomberg forecast the core CPI to rise 0.2% from the prior month and 2.3% from a year earlier, with the broader index seen rising 0.3% and 2.4% on a year-over-year basis.

(Updates with market reaction in fourth paragraph, adds chart)

--With assistance from Jordan Yadoo.

To contact the reporter on this story: Vince Golle in Washington at vgolle@bloomberg.net

To contact the editor responsible for this story: Scott Lanman at slanman@bloomberg.net

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