Inflation Rose 1.7 Percent For Consumers in 2012

Andrew Klips |

The Labor Department said Wednesday morning that its Consumer Price Index, a key measure of inflation, was flat in December, lead by a drop in gasoline prices, following a 0.3 percent increase in November. The unchanged figure will give the Federal Reserve room to continue on with its monetary easing policies, which include $85 billion every month in bond and mortgage-backed security purchases, and keeping interest rates at historic lows to help stimulate the U.S. economy.

Economist were widely predicting December’s CPI to be flat or at most up by 0.1 percent.

For the complete year 2012, consumer prices increased by 1.7 percent, representing the third slowest yearly increase in the last decade. In 2011, consumer prices increased 3.0 percent. Over the last 10 years, the average yearly increase is 2.4 percent.

In December, Fed Chairman Ben Bernanke said that the central bank planned to keep interest rates near zero as long as inflation holds below 2.5 percent, or the unemployment rate finally drops below 6.5 percent.

So-called core CPI, the inflation barometer that strips-out volatile food and energy, is more closely watched by the Fed. During December, core CPI rose just 0.1 percent to wrap the year with a 1.9 percent increase, below the policy maker’s target of 2.0 percent and matching the average annual increase for the last 10 years. Core CPI rose 2.2 percent in 2011.

During December, gasoline costs fell by 2.3%, following a 7.4% decline in November. In August and September, gas prices were spiking and lofting the CPI higher. The late-year declines moderated non-seasonally adjusted hikes in gas prices to 1.7% for 2012.

For the year, the full energy index increased just 0.5 percent, a sharp decline from the 6.6 percent increase in 2011.

The food index rose 0.2% in December (the third straight month with 0.2% increases) to finish 2012 with a 1.8 percent increase.

Medical care services posted the largest increase in 2012 with a rise of 3.7 percent.

The report coming on target with predictions has made little impact on Wall Street. In morning action, the Dow Jones is off by 34 points and the S&P 500 is lower by only 1 point, while the Nasdaq has eked upward by 4 points.

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