United States Inflation December 2018

United States

United States: Inflation falls in December on energy price tumble

January 11, 2019

Consumer prices fell 0.1% from the previous month in December, down from November’s flat reading and matching analysts’ expectations. December’s result, as in November, was driven primarily by a 3.5% drop in energy prices in the month (November: -2.2% month-on-month) resulting from the rout that has affected crude oil markets since October. On the other hand, food prices increased a robust 0.4%, while the price of piped natural gas also surged in the month. Core consumer prices—which exclude volatile items such as food and energy prices—rose 0.2% month-on-month in December, stable from November and also matching market expectations.

Inflation fell from 2.2% in November to 1.9% in December, which was also in line with expectations. Overall, energy prices fell marginally in 2018, while inflation for services—particularly shelter and transport—pushed the headline print up. Meanwhile, core inflation—one of the most closely watched indicators of the report for predicting future monetary policy moves—was stable at November’s 2.2% in December. This was consistent with the Federal Reserve’s goal to keep core PCE inflation, its preferred price gauge, close to 2.0%.

Despite strong wage and employment growth in the December jobs report, which could put upward pressure on core inflation going forward, recent financial market volatility and fears of an incoming slowdown have caused the Fed to adopt a much more dovish tone in recent weeks. This was reflected by the FOMC’s revised economic forecasts at its December meeting, indicating two rate hikes were likely this year instead of three as previously projected. With the recent fall in energy prices poised to dampen headline inflation, and core price pressures remaining near the Fed’s ideal range, it is possible that December’s inflation reading will provide additional ammunition for dovish FOMC members, and nudge the Fed towards abstaining from another rate hike in the first quarter. In addition, the labor force participation rate increased in December, suggesting there may still be more slack in the labor market than previously thought. This could also be an argument supporting a cautious approach to monetary policy tightening.

United States Inflation Forecast

FocusEconomics Consensus Forecast participants expect inflation to average 2.2% in 2019, down 0.1 percentage points from last month’s forecast. For 2020, the panel also expects inflation to average 2.2%.

Author:, Economist

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United States Inflation Chart

USA Inflation December 2018

Note: Year-on-year and month-on-month variation of seasonally-adjusted consumer price index in %.
Source: Bureau of Labor Statistics.

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