Consumer Prices Tame in December

The 0.1% decline in the CPI follows a larger decline in the PPI last week.
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Updated from 8:35 a.m. EST

Investors got another welcome inflation surprise Wednesday.

The government said the consumer price index fell 0.1% in December. Economists had expected the index to come in unchanged. The core rate, which measures prices excluding energy and food, rose 0.2%, matching the consensus forecast. Energy prices fell 1.8%.

Consumer prices rose 0.2% on both a headline- and core-rate basis in November.

The government last Friday said the producer price index fell 0.7% in December. Excluding food and energy costs, prices rose 0.1%. Economists expected a decline of 0.2% and an increase of 0.2%, respectively. The largest monthly decline in a year and a half was driven by a 4.0% slide in energy prices. December's larger-than-expected decline followed a 0.5% jump in November.

The tame December data comes amid growing speculation that the

Fed

has changed its thinking on interest rate policy and is more concerned about a pickup in inflation than it was before. In December, the central bank raised interest rates a quarter of a percentage point for the fifth time since late June, taking the fed funds rate up to 2.25%. The Fed does not officially meet again until February, but the bank has been known to changes rates in between meetings.

Both the CPI and PPI were unusually volatile in 2004, given the overall increase in energy and other commodity prices as well as their monthly fluctuations.

In other economic news, jobless claims fell 48,000 to 319,000 last week, the largest decline in three years. Housing starts rose 10.9% to an annual pace of 2 million units in December, while November's reading was revised higher to 1.81 million units. Building permits, however, fell 0.3% to a seasonally adjusted annualized rate of 2.02 million units. Nevertheless, all the data came in better than economists' forecasts.