WASHINGTON (AP) ? Consumer prices were unchanged last month, the latest sign that inflation remains tame. Lower gas prices offset rising costs for food, medical care and housing.
The Labor Department says the consumer price index was flat in December for the second straight month. Excluding volatile food and energy costs, so-called “core” prices rose 0.1 percent.
Inflation appears to be peaking after rising steeply last year. Prices rose 3 percent in 2011, up from a 1.5 percent pace in 2010 and the most since 2007. But that’s down from the 12-month increase of 3.9 percent in September.
Lower inflation gives consumers more spending power, which boosts growth. It also gives the Federal Reserve more leeway to keep interest rates low and take other steps to boost the economy.
A small amount of inflation can be good for the economy. It encourages businesses and consumers to spend and invest money sooner rather than later, before inflation erodes its value.
Many economists say inflation has peaked and they expect the rate to decline this year. The prices for oil and many farm commodities, such as corn and wheat, have declined. That’s brought down the price of gas and slowed food inflation.
And while the economy is growing, it is expanding at a sluggish pace. So that keeps a lid on prices. Unemployment is still high and Americans’ paychecks aren’t rising by much.
Given those conditions, retailers are reluctant to charge more. In fact, many discounted merchandise to boost holiday sales this year.
Prices at the wholesale level, meanwhile, dipped slightly last month, the department said Wednesday. Food and energy prices both fell, driving the producer price index down 0.1 percent. Excluding food and energy, core prices rose 0.3 percent, as the cost of pickup trucks, cars and pharmaceuticals rose.
The Federal Reserve projects consumer price inflation will fall from about 2.8 percent in 2011 to roughly 1.7 percent this year.
That’s in the Fed’s preferred range for core inflation of about 1.7 percent to 2 percent.