WASHINGTON (1/20/15)--The consumer price index (CPI) took a sizable step back in December, dropping 0.4% for the month after a 0.3% decline in November, according to Friday's numbers from the Bureau of Labor Statistics (Economy.com Jan. 16).
Largely fueled by falling oil prices, the drop was the biggest since 2008. The headline CPI index has slipped to 0.7% on an annual basis, according to Moody's.
"This report provides evidence that soft prices are not confined to energy-related goods and services, as the core index was flat," said James Bohnaker, Moody's analyst (Economy.com). "With nonenergy prices no longer accelerating, policymakers may question if underlying inflation is moving toward the 2% benchmark."
Core inflation is running at 1.6% on a year-ago basis, compared with 1.9% six months earlier, Bohnaker added.
The energy index dropped by its largest number since 2008, as gasoline prices fell 9.4% in December. Fuel oil also sank, dropping 7.8% for the month.
Food prices climbed 0.3% after a 0.2% increase in November, with both food at home, and food away from home, posting price increases.
Despite the weak month for inflation, economists believe the Federal Reserve is still on track to raise short-term interest rates in 2015.
"With core inflation unlikely to fall much below December's 1.6% ... and headline inflation to (soon) rebound to 2% ... the Fed will still raise rates this year," Paul Dales, senior U.S. economist at Capital Economics, told MarketWatch (Jan. 16). "Since lower gasoline prices provide a net boost of activity, core inflation is unlikely to fall much further."
Economists from the Credit Union National Association released their economic forecast for 2015, and also maintain the Fed will hike the Federal funds rate in July.