United States: Core inflation remains unchanged in December
January 14, 2011
Consumer prices rose for a sixth consecutive month in December, increasing a seasonally adjusted 0.5% over the previous month. The reading came in a notch above the 0.4% rate expected by the market and more than doubled the 0.2% increase tallied in December 2009. As a result of the pronounced monthly price rise, annual headline inflation jumped to 1.5% in December (November: 1.1%). The increase reflected soaring energy costs, which jumped 4.6% over the previous month due to an 8.5% increase in gasoline prices. The closely watched core inflation index, which does not include food and energy, rose a modest 0.1% over the previous month. Thus, annual core inflation remained unchanged at November's 0.8%, which followed a record low of 0.6% in October. Core inflation remains below the level the Fed judges consistent with its definition of price stability, providing monetary authorities with ample manoeuvring room to pursue their mandate of obtaining promoting full employment. Therefore the Fed will maintain its purchases of securities in order to foster maximum employment. The Fed anticipates PCE inflation (based on the price index for personal consumption expenditures) to average between 1.1% and 1.7% in 2011 and between 1.1% and 1.8% in 2012.