U.S. Consumer Prices Fall 0.1% in December

WASHINGTON—U.S. consumer prices fell in December, a sign that the economy is still absorbing the impacts of a strong dollar and sinking energy costs.

Increases in prices for shelter and medical care decelerated slightly from faster gains in recent months, and weren’t enough to offset declining energy and food costs in December. Layoffs in the energy sector have rippled throughout the economy, cooling off once-hot housing markets in areas dependent on the energy industry.

The consumer-price index, which measures what Americans pay for everything from airfare to baby food, fell a seasonally adjusted 0.1% in December, the Labor Department said Wednesday. Excluding the volatile food and energy categories, so-called core prices rose 0.1%, their smallest increase since August.

Economists surveyed by The Wall Street Journal had expected both overall prices to stay flat, and core prices to rise 0.2%, as they did in November.

The cost of many essentials such as shelter and medical care has been steadily increasing, even as prices for energy products and consumer goods have fallen. A strong dollar has made imports cheaper, lowering the prices of many products made overseas like apparel and cars.

But for many Americans, housing and health care demand a growing share of income. Shelter prices have risen year-over-year by 3.2%. The price index for medical care services was up 2.9% in December from the same month a year ago.

”None of these numbers change the big picture, of a bifurcating core CPI, with goods prices falling while services prices slowly picking up speed,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note to clients.

From a year earlier, overall prices rose just 0.7% in December, held down by a 12.6% year-over-year decline in energy prices. The price for food at home fell in 2015, for only the third time in the past 50 years.

Wednesday’s report showed an index of energy prices fell 2.4% in December, led by a drop in fuel oil and gasoline costs. Over the year, the price index for gasoline has fallen by 19.7%, saving many Americans hundreds of dollars.

”The broad-based nature of the decline in inflation will hardly be encouraging news at the Fed, and if anything it is likely to temper their confidence in the outlook for inflation,” said Millan Mulraine, an economist with TD Securities USA LLC, in an analyst note.

The Federal Reserve has said it would carefully monitor “actual and expected progress toward its inflation goal” of 2% as it considers subsequent rate increases in the year ahead. In December, it raised short-term interest rates from near zero for the first time in nearly a decade.

Because shelter and medical care make up a substantial share of spending, their rise over the past year has pushed core prices up by 2.1% over the past 12 months, the largest increase since 2012.

But Fed officials prefer a different inflation gauge, the price index for personal consumption expenditures, which includes a broader range of goods and services consumed in the U.S. than the CPI. The core PCE index has been running about 0.7 percentage points lower than the core CPI. Fed Chairwoman Janet Yellen said in December that the impact of low oil prices on inflation could “wash out” if prices stabilized, but oil has continued its downward slide since then.

Real average weekly earnings inched up by 0.1% in December from the prior month, but this reflected flat earnings combined with slightly more purchasing power from December’s lower consumer prices.

A gauge of U.S. business prices fell in December, the Labor Department said Friday. The producer-price index, which measures the prices companies receive for goods and services, posted its 11th straight year-over-year decline.