Figures signal slowdown in US inflation

The US consumer price index was flat in December, adding to evidence that inflation is slowing and creating space for the Federal Reserve to consider more monetary easing this year.

The CPI stayed flat for a second consecutive month as falling energy costs offset other increases. That compared with expectations of a 0.1 per cent gain. Stripping out fuel and food costs, the “core” CPI rose 0.1 per cent, in line with forecasts.

Federal Reserve policymakers have forecast a slowdown in consumer price inflation as the effect of rising oil prices fades away but confirmation of the downward trend may give it greater confidence to act. The Fed will hold a two-day monetary policy meeting on Tuesday and Wednesday.

“Stores had to discount a lot in the holiday season and there was just not a lot of price pressure,” said Steven Leslie, lead analyst at the Economist Intelligence Unit. He said the year on year price rise of 3 per cent was lower than he had expected. “That’s pretty quiet inflation.”

Energy prices fell for a third month, down 1.3 per cent, led by a 2 per cent seasonally adjusted decline in petrol prices. Energy for home heating was also less expensive in December. That offset a 0.2 per cent rise in food prices.

The rise in core inflation was driven by higher costs of shelter, medical care and services, recreation and airline fares. But prices for used cars and trucks were lower, and retailers’ discounts helped reduce clothing prices.

There were also encouraging signs from the labour market with first-time claims for unemployment benefits falling last week to the lowest level in almost four years.

Jobless claims dropped 50,000 to 352,000 in the week ending January 14, the lowest level since April 2008, the labour department said on Thursday. The less volatile four-week moving average of new claims fell 3,500 to 379,000.

“There’s always noise around the turn of the year, so we can’t read too much into one week,” cautioned Jonathan Basile, director of economics at Credit Suisse. But he added that “the trend remains an improving track”.

In contrast to signs of acceleration elsewhere in the economy, the housing sector remains under pressure, illustrated by the commerce department’s report on new residential construction, released on Thursday.

Housing starts dropped 4.1 per cent to a seasonally adjusted annual rate of 657,000 in December, a steeper decline than expected, while permits for new building, a proxy for future construction, were little changed.

While ground was broken on more single-family homes last month, construction of multi-family units plunged 27.8 per cent, the most in 10 months.

Activity declined most sharply in the north-east, down 41.2 per cent, and was also lower in the southern and western US. Starts were up 54.8 per cent in the Midwest, however.