Consumer prices in U.S. drop most in 6 years as fuel falls

The savings are helping retailers such as supermarket chain Supervalu Inc. to stay upbeat about sales prospects. Today’s report showed food costs increased 0.3 percent in December.

“The consumer should feel great” as cheaper gasoline “frees up a lot of income for people to make purchases on other goods and services,” said Brian Jones, a senior U.S. economist at Société Générale SA in New York, who correctly projected the unchanged reading in the core index. “For the next several months, we’re going to see negative headline prints on the CPI, primarily because of the weakness in gasoline pump prices.”

The cost of living decline helped boost paychecks. Hourly earnings adjusted for inflation rose 0.1 percent, after a 0.6 percent increase the prior month, a separate report from the Labor Departmentshowed. They were up 1 percent over the past 12 months, the most since February.

Inflation target

The Fed’s 2 percent inflation goal is based on the personal consumption expenditures index, the Commerce Department’s price gauge that is tied to consumer spending. That measure climbed 1.2 percent in the 12 months through November and hasn’t been at 2 percent since April 2012.

The central bankers are betting that strengthening employment will help push up prices, according to minutes of the Federal Open Market Committee’s Dec. 16-17 meeting released last week.

“Participants generally anticipated that inflation would rise gradually toward the Committee’s 2 percent objective as the labor market improved further and the transitory effects of lower energy prices and other factors dissipated,” the record showed.

Any signs that wage growth is starting to pick would help Fed officials feel more comfortable raising interest rates that have remained near zero for more than six years. Payroll gains coming off their best performance since 1999 and a jobless rate that’s fallen faster than expected are tightening the labor market, a sign that employers may feel pressure to boost paychecks.

Rising wages

Hourly earnings for employees on company payrolls will advance 2 percent to 3 percent on average in 2015, according to 61 of 69 economists surveyed Jan. 5-7. They climbed 1.7 percent in the year through December.

The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.

The Labor Department’s gauge of wholesale prices, which includes 75 percent of all U.S. goods and services, declined 0.3 percent in December on cheaper fuel. The drop was the biggest in three years and followed a 0.2 percent decrease the prior month, data showed Jan. 15. A separate report indicated the cost of imported goods fell 2.5 percent last month.